Merkel’s Scope to Boost Spending Narrows as Revenue Growth Slows

German Chancellor Angela Merkel’s bloc seized on forecasts that tax-revenue growth slowed, saying the scope to indulge her would-be coalition partner’s calls to boost government spending has lessened.

Germany’s projected tax revenue through 2017 may increase by 13.9 billion euros ($18.5 billion) more than forecast in May, a government-appointed panel of forecasters said today in its twice-yearly review. That’s less than 0.5 percent of the total for the five-year period.

The findings show that Merkel and Social Democratic Party officials now negotiating a coalition for the next four years have “very little leeway to finance new measures,” Norbert Barthle, the budget spokesman for Merkel’s Christian Democratic Union, said in an e-mailed statement. Coalition negotiators instead need to focus on “priority decisions,” he said.

The forecasts provide Merkel with evidence to counter some of the demands made by the SPD in the negotiations that followed her Sept. 22 election victory. The cost of implementing all the main coalition proposals would be 52 billion euros, led by SPD demands for a minimum pension that would cost at least 10 billion euros, Die Welt newspaper reported today, citing its own calculations.

The German government has tied revenue projections to a mid-term plan to balance annual budgets, meaning that tax forecasts are closely watched as a gauge of potential financing that would allow an increase in spending.

Infrastructure Programs

Merkel refuses to agree to SPD calls to raise tax on higher incomes to fund infrastructure programs while supplying enough revenue to honor deficit goals. She told coalition negotiators on Nov. 5 that their spending proposals could quickly wreck Germany’s healthy budget, Die Welt reported.

Federal tax revenue this year will add up to 260 billion euros, or 0.5 percent more than expected in May, the panel said. Next year, the expected returns will be 269 billion euros even though the pace of economic growth is expected to accelerate to 1.7 percent from 0.5 percent in 2013.

The federal government, which is one of three levels of public finances, will need to “stay on a strict budgetary diet” if it is to fulfil its legal commitment not to take out new debt from 2015, Barthle said.

The government’s tax panel comprises economists from the Finance Ministry, the Bundesbank and independent research institutes.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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