Scholz announces new incentive package with nearly 100 billion euro tax loss

For the German budget, the pandemic means greater expenditures and less income. For the first time since the financial crisis, tax revenues are falling but Finance Minister Olaf Scholz (SPD) is not thinking about austerity. On the contrary, another economic stimulus package is planned in June to help boost the economy.

In 2020, Germany’s federal, state and local governments are expected to collect €98.6 billion less in taxes than the previous year. Scholz announced this 10% decline (according to the estimates of the Council of Assessors) at a press conference on Thursday (14 May).

The crisis caused by the pandemic is thus placing a greater burden on government revenues than the 2009 financial crisis, due to the slump in economic activity in the wake of the measures to combat the virus.

However, in a break with the insistence on austerity and balanced budgets of the previous decade, Scholz described it as a “serious mistake” to think about austerity measures now, because “you can’t save against a crisis.”

Transformation targets still apply

On the contrary, the government will present an economic recovery plan in June. It is intended to support demand, stabilise incomes and stimulate investment, and it will do so in 2021 and 2022.

The package will also promote the digital and ecological transformation, because, as Scholz made it clear, “the goal of becoming climate-neutral by 2050 applies despite the corona pandemic.”

Scholz did not want to announce new taxes on demand. The coalition decision in this regard was still valid.

However, he admitted that the SPD “would have found a little more justice in the tax system quite good,” and added: “But this will be up for debate in the next federal elections.”

Support needed for EU countries

Despite the hole in the national budget, Germany had “done well” with the measures in an international comparison. However, for the German economy, it is important that other EU countries also recover, so they can start purchasing German exports again.

Therefore, “countries that are particularly challenged must be better supported,” Scholz said.

He described the tax estimate as merely a “snapshot” due to the current uncertainties. Before next year’s budget is drawn up, there will be an additional tax estimate, probably in September.

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