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German Tax Revenue Growth Weakens Amid Euro Area Recession

May 8 (Bloomberg) -- German tax revenue will be lower than forecast this year and next, the Finance Ministry said in new forecasts that show the recession in the euro area is weighing on the region’s biggest economy.

Revenue will total 615.2 billion euros ($810.5 billion) in 2013, a decline of 2.8 billion euros from a November projection, the ministry said today in an e-mailed statement. Next year, tax revenue will grow by 3.8 billion euros less than expected to 638.5 billion euros, the ministry said. It cited the findings of a three-day meeting of a tax panel that includes economic institutes and the Bundesbank in the eastern city of Weimar.

The federal government will be able to absorb the anticipated drop in revenue without being forced to make an upward adjustment of net new borrowing this year, Finance Minister Wolfgang Schaeuble said at a press conference in Berlin after the data was released. The 2014 federal budget now in planning will still show a structural balance, Schaeuble said.

The clouded revenue development “has no impact on the 2013 federal budget,” said Schaeuble, who cited the economy’s contraction in the fourth quarter of 2012 as contributing to the new revenue outlook. Net new federal borrowing this year will not exceed the expected 17.1 billion euros set in the budget he said.

Weaker tax revenue growth is repeated in each year of the panel’s latest forecast compared with the earlier estimate. Total German tax revenue from 2013 to 2017 will be 13.2 billion euros less than estimated six months ago, the panel estimated.

‘Positive Result’

“It’s a positive result all in all,” Schaeuble told reporters. Germany’s record level of employment is supporting tax revenue growth even if the current outlook is slightly dimmer than in November, his ministry said in the e-mail.

The International Monetary Fund predicts the German economy will expand 0.6 percent this year after growing 0.7 percent in 2012 as its biggest export market, the euro area, remains mired in recession. German unemployment rose for a second month in April and business and investor confidence dropped.

The German government is obliged to reduce the federal deficit because of a constitutional “debt brake” that compels Schaeuble to cut the budget shortfall to 0.35 percent of gross domestic product by 2016.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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

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