EZA 790 Report:

11 May 2007

11May 2007– Germany: Tax Estimate

Tax estimate threatens risk of fiscal slippage going forward Cyclical increase of tax revenues by 9.3% this year and 3.3% in 2008 allows a further budget balance to be achieved in 2008 (from 1.7% deficit in 2006). Deflecting demands for more spending – notably on the part of the CDU/CSU and premature tax cuts are likely short term challenges for the finance minister. The biggest threat to the newly found fiscal soundness comes from social insurance, notably pensions and healthcare – in the second half of the electoral term.

Asset conclusions: heightened risk of premature abandonment of the path to fiscal consolidation and structural reform implies more yield pressure.

© Graham Bishop