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August 25, 2016


The inexorable rise in the German fiscal surplus

Germany is in acute danger of missing its own self-imposed fiscal target - die Schwarze Null - of a budget that is in balance or in a slight surplus. The latest tax revenue figures suggest that the country is heading for a huge fiscal surplus of 1.2% of GDP based on a statistical extrapolation of H1 data to the rest of the year. Frankfurter Allgemeine notes that this is hard to do because spending and revenue patterns differ in the second half, but it clearly appears to be the case that the country is heading towards a strong surplus this year. 

The surplus is giving rise to calls for tax cuts. We find it astonishing that the SPD is not pressing harder for higher infrastructure investment, whereas the public debate is now focused almost entirely on taxes. The paper quotes Michael Fuchs, the deputy leader of the parliamentary group of the CDU, as demanding across-the.board income tax cuts, favouring lower- and middle-income earners. Wolfgang Schauble is resisting this, at least until the end of the year. We would be surprised, however, if he missed the chance of a tax cut for the 2017 election year budget. The CDU wants tax cuts of some €30bn. It calculates that a third of that would be returned to the state through taxes on consumption and income, so that the net cost to the state would be €20bn, which is close to the tax surplus.

The finance ministry cautions that it would have to wait until the end of the year to make an accurate calculation. It says the extra revenues will in part be compensated for by higher-than-budgeted expenditures. Germany's contribution to the Syria conference is €630m. A further €400m have been set side aside for housing costs for refugees, plus an additional €2bn as direct payments to refugees, and finally €1bn in reserves, also in connection with the refugees. 

In the political debate, we noted a point raised by the FDP which argued that the increase in tax revenues was the indirect result of low interest rates, which had produced a financial bubble (and also reduced the debt funding costs of the German government, which now borrows at negative interest rates).

Our other stories

We also have stories on how Ciudadanos is becoming less principled about corruption; on bond markets ignoring Russian sanctions; on hedge fund's problems; on whether the fall in French unemployment is real or fabricated; on an unbelievably extreme proposal by the German council of economic advisers; and on how Syriza indirectly benefits from the trial of the former Elstat chief.

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