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Germany's Rising Revenues Confirm Correct Tax Course

Following an unexpected dip in revenues reported in August, the German Finance Ministry has once again posted significant revenue growth in September 2013, evidence that Germany is on the right fiscal track and that the course should not be changed.

According to the German Finance Ministry, revenues were up EUR54.7bn (USD74.8bn) or 7.8 percent in September 2013, compared to September 2012. The recorded rise is predominantly attributable to an increase in income from wage tax (6.1 percent), from assessed income tax (9.2 percent), and from corporation tax (93.6 percent).

In contrast, revenue derived from value-added tax (VAT) showed sluggish and disappointing on-year growth of just 0.8 percent in September this year, compared to the same month last year. The downward trend in import VAT continued last month (-9.6 percent), while receipts from domestic VAT posted a gain of 4.5 percent, boosted by an increase in domestic consumption. In total, revenue from VAT increased by just 1.1 percent on the year in the January to September 2013 period.

The yield from direct federal taxes rose 6.3 percent in September 2013 compared to September 2012. The revenue increase was due notably to a rise in income derived from energy tax (3.1 percent), from the country's solidarity tax (11.9 percent), from tobacco tax (18.1 percent), insurance tax (13.4 percent), motor vehicle tax (4.8 percent), and from aviation tax (18.7 percent).

After the first nine months of the year, namely January to September 2013, revenues in Germany had already reached EUR416.4bn, up 3.2 percent compared to quarter three results 2012. During the upcoming November tax estimate, it is anticipated that experts will correct upwards by around 2.5 percent the forecast for the whole of 2013.

The Finance Ministry's latest monthly report will come as welcome relief to German Chancellor Angela Merkel and her ruling Christian Democratic Union (CDU), as the party prepares to embark on official coalition negotiations with the Social Democrats (SPD).

The CDU and its Bavarian sister party, the Christian Social Union (CSU), have firmly ruled out the idea of tax rises in the new legislative period, insisting instead that the state must make do with the revenues that it has. Ahead of coalition talks, Chancellor Merkel reassured her leadership team, stressing that the SPD is 'crystal clear' that there will be no compromise on tax policy.

During its election campaign, the Social Democrats pledged to raise the top rate of income tax in Germany to create scope for additional investment in infrastructure and education. September's revenue figures remove any leverage that the party might otherwise have had on the issue.

 

 

For further information please contact Helmut Beck, international contact partner for our firm in Germany on

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