Additional Tax Revenues Should Be Used for a Bold Tax Reform

The Working Party on „Tax Revenue Estimates“ at the German Federal Ministry of Finance has made considerable upward revisions to their estimates of German tax revenues until 2021. According to the Working Party's estimates, annual tax revenues on the federal, state and municipal level are expected to increase from 732 billion euros in 2017 to 852 billion euros in 2021. Compared with previous forecasts, there has been an upward correction of 46 billion euros regarding tax revenues for the period of 2018–2021. This being the case, tax revenues on the municipal and state level are likely to experience stronger growth than federal revenues. Professor Friedrich Heinemann, head of the Research Department „Corporate Taxation and Public Finance“ at the Centre for European Economic Research (ZEW), offers his view on the matter.

„The increase of more than 15 per cent in tax revenues over the next four years could be an opportunity for the German government to implement a comprehensive tax reform after the German federal elections. For the past ten years, tax policy in Germany has remained practically stagnant. With regard to growth-friendly tax systems, Germany still has a lot catching up to do.

For instance, tax incentives for research and development, as well as a decrease in marginal tax rates for average wage earners are long overdue. Such tax reforms are associated with considerable costs, but once implemented, they can provide impetus for sustained growth by increasing investment, employment and consumption.

Using additional tax revenues exclusively to increase government spendings is a rather unimaginative and one-sided policy approach. And since the financial position of the federal states is improving substantially, state level politicians should be bolder in terms of tax policy reforms and not impede the work of the next federal government in this field."

For further information please contact:

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail heinemann@zew.de