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By Maria Martinez and Kirsti Knolle
BERLIN/WASHINGTON (Reuters) -The projected shortfall in Germany’s draft 2025 budget widened to 13.5 billion euros ($14.58 billion) from 12 billion euros as a result of the government’s new economic and tax estimates, Finance Minister Christian Lindner said on Thursday.
Germany’s council of tax experts expects 58.1 billion euros ($62.72 billion) less in total tax revenue in the 2024-2028 period compared with its May forecast, projections on Thursday showed, reflecting a further weakening of the economic outlook.
Germany is facing a sharp economic downturn and productivity trends have been very weak, said Oya Celasun, deputy director of the European Department at the International Monetary Fund.
“Public investment should be higher in Germany as it is among the countries with the lowest public investment rates among advanced economies,” Celasun said at the IMF annual meetings.
“There is no new room for manoeuvre in the budget. On the contrary: We will have to consolidate further,” Lindner said in Washington, where he is attending the annual IMF and World Bank meetings.
However, he said his intention was to bring next year’s shortfall to 9.6 billion euros against spending of 489 billion euros. Lindner said he expected coalition negotiations, albeit challenging, to allow the budget to pass both houses of parliament by the end of the year as planned.
The budget gap has increased even when the government expects 700 million euros more in tax revenues in 2025 due to changes in EU transfers, which are expected to be lower than assumed in May.
The cabinet approved the 2025 budget, which included a 12 billion euro deficit in the summer after months of wrangling, but left open the question how to reduce the gap between projected spending and revenue.
For the federal government alone, tax experts foresee 3.4 billion euros less in tax revenues this year than forecast in May and 12.6 billion euros less in the five-year period.
Due to the higher projected shortfall, the finance ministry has decided to make full use of an additional 5.4 billion euros in debt allowed under Germany’s “debt brake” legislation that restricts government borrowing, but offers some leeway during economic downturns.
“We cannot rely on the fact that tax revenues will keep flowing. We need economic growth,” Lindner said.
The German government agreed on a package of 49 measures aimed at bolstering stuttering growth in Europe’s biggest economy. The plans must be approved by the upper and lower houses of parliament later this year.
The opposition blamed the government for the shortfall in revenues, saying it was the result of chaotic economic policy.
“Three years of a traffic light coalition with two years of recession have left clear negative marks,” said the chief budget officer of the Christian Democrats CDU/CSU, Christian Haase.
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(Reporting by Maria Martinez, Kirsti KnolleEditing by Miranda Murray, Tomasz Janowski and Nick Zieminski)