German tax revenue seen falling short

German tax revenue seen falling short this year, even as government mulls tax cuts

• On 11:49 am EST, Thursday November 5, 2009

BERLIN (AP) -- German government tax revenue is expected to fall about euro3 billion ($4.4 billion) short of previous estimates this year, the Finance Ministry said Thursday, but the new governing coalition vowed to press ahead with tax-cutting plans.

Germany's economy, Europe's biggest, is expected to shrink by 5 percent this year and grow by 1.2 percent in 2010. The slowdown has weighed on tax revenue.

A regular meeting of tax experts this week estimated that this year's total tax revenue will be euro524.1 billion ($779.18 billion) -- euro2.9 billion ($4.31 billion) less than was forecast in May, and largely a result of changes in tax regulations, the Finance Ministry said.

That would mean a 6.5 percent decline compared with the previous year, a post-World War II record, said Andreas Rees, an economist at UniCredit in Munich.

Next year's total tax take should come in at euro511.5 billion ($760.45 billion), a euro1.1 billion ($1.64 billion) improvement on the previous forecast, the ministry said.

Chancellor Angela Merkel's new center-right government took office last week after agreeing to cut taxes by a total of euro24 billion ($35.68 billion) per year starting in 2011. However, it has left open many details of how it will implement that pledge.

The aim is to spur economic growth, ultimately improving tax revenue. But critics have questioned how, given the impact of the crisis of public finances, the cuts can be made.

The agreement "will be implemented," Finance Minister Wolfgang Schaeuble said. "It is right and necessary."

"The shortfalls are no longer quite as dramatic as feared," he said, though he acknowledged that "they are significant."

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