Germany
Lower tax estimate might deflect spending pressure
The latest tax estimate (06Nov to 09Nov) implies a € 4.6 bn upward revision of 2007 tax revenue, but only a revision by € 0.3 bn for 2008.
Even taking GDP revisions (-0.2% for 2008) and tax cuts from corporate tax reform into account, the numbers imply the risk of budget strains and a rise in the deficit.
The numbers might act as a health warning against a dilution of economic reforms, backing the CDU case against extending unemployment benefits.
Asset conclusions: sobering tax estimate might help deflect spending pressure, but a surplus in 2008 seems unlikely. Mildly positive for German government bonds.
© Graham Bishop
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