Tax Losses Act as Automatic Stimulus Package

Against the backdrop of the severe coronavirus-induced recession, the German Federal Ministry of Finance’s Working Party on Tax Revenue Estimates has now published its new forecasts. According to the estimates, this year alone, tax revenues at federal, state and municipal level will be 98.6 billion euros lower than previously expected. For the years 2020 to 2023, the expected revenues have been revised downwards by a total of 315.9 billion euros. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments.

“Even though the figures seem alarming, fiscal policymakers should not abandon their crisis policy now. There is a consensus among public finance experts to allow a high deficit in the case of a deep recession. The large tax shortfalls ultimately act as a kind of automatic stimulus package. In this way, the fiscal authorities take over part of the crisis-related losses, thereby relieving companies and private households in the critical phase of the crisis. Germany has no problems covering the tax losses with loans in the acute crisis. However, it is also clear that, at the latest, the newly elected German Bundestag in 2021 will have to initiate budget consolidation and begin repaying the coronavirus-induced debts. Fiscal policymakers should already keep this in mind and become increasingly critical in demanding ever new aid measures.”