EZA 897 Report: Germany

20 May 2009

German tax estimate – turning the political debate against tax cuts

•  The bi-annual German tax estimate on 13May is the first one discounting the full effect of the financial and economic crisis on German public finances.
• The results imply a tax shortfall of €45bn for the public sector in 2009 and a total tax shortfall of €316bn over the 2009/13 forecasting period.
• In the media the estimate is regarded as pouring cold water on the credibility of tax cut plans as put forward by the CDU/CSU.
• In effect the tax estimate points at a sea change in the current expansionary fiscal policy in 2011 and 2012, assuming a sufficient strength in the economic recovery.
   

Asset conclusions: the May tax estimate, forecasting a record tax shortfall fuelled the debate against tax cuts and small government, supporting bonds but weighing on equities.
 

© EZA