Are you sure?

Germany plans lowest deficit since reunification

German lawmakers plan to use surging tax revenue generated by the fastest economic growth in six years to reduce the government's net borrowing requirement next year to the lowest since reunification of East and West Germany in 1990.

Lawmakers from parliament's budget committee, meeting late yesterday to fine-tune a 2007 budget spending program drawn up July 5, agreed to push down federal net credit to €19.58 billion ($25.2 billion) from about €30 billion this year, according to a statement handed out to reporters in Berlin. The improved revenue outlook will permit planned investment of €23.9 billion, it shows. “This budget safely complies with constitutional requirements” that investment exceeds borrowing, Steffen Kampeter, budget spokesman for Chancellor Angela Merkel's Christian Democrats, told reporters in Berlin today. “We're faced with solid revenue growth and spending is under control.” Next year's budget is one area of optimism for Merkel, struggling with record low opinion poll ratings for her party and buffeted by criticism from her own panel of economic advisers for pursuing policies dictated by “party-political compromises.” In a speech on November 6 in Berlin, Merkel said her coalition's net borrowing requirement next year would be the lowest since the two German states reunified and was a sign her policies were sound.

Germany's economy, Europe's largest, is expected to grow 2.3% this year and 1.4% next year, according to government forecasts. Accelerating growth means tax revenue will reach €484.9 billion in 2006, exceeding previous estimates by €19.4 billion, the Finance Ministry said in its twice- yearly forecast on November 3. Revenue in 2007 is forecast to be €514.1 billion, €20.1 billion higher than forecast. The windfall will help Germany fulfill the European Union's budget-deficit limit of 3% of gross domestic product this year for the first time since 2001, Finance Minister Peer Steinbrueck has said. “After the tax estimates people may have gained the impression that we are swimming in money,” Kampeter said. “We've done our best in the last few weeks to convince everyone that cutting the deficit is our priority.” Soaring revenue permits federal spending to be increased by about €3 billion from an earlier plan to €270.5 billion without causing a net increase in borrowing, according to the lawmakers' plan. Merkel and fellow coalition leaders agreed November 3 to use the tax-revenue surplus generated by the fastest economic growth in six years to lower the budget deficit and reduce unemployment- insurance premiums. Some €17 billion of the €40 billion above May's estimate in federal, state and municipal tax revenue this year and next goes toward Merkel's budget over two years, the government's forecasters have said. (Bloomberg)