German tax revenues drop sharply in June – Finance Minister

BERLIN (Reuters) – Tax revenues of Germany’s federal and regional state governments fell by 7.3% in June compared with the previous year, reflecting tax relief measures to compensate for inflation and a one-off effect, the finance ministry said on Thursday.

Federal and state governments’ tax revenue declined to a total of 86.39 billion euros ($96.71 billion), according to the ministry’s monthly report.

The ministry said the year-on-year decrease was amplified by a special revenue-increasing effect in June of last year. When adjusted for that effect, revenues would be down 3.5%, it said without elaborating further.

In the first six months of the year, tax revenues totalled 399.75 billion euros, down by 2.0% compared with the first half of 2022.

For the whole of 2023, experts have forecast a 2.9% increase in tax revenues to 838.19 billion euros, up 2.9%, according to the report.

Economic indicators continue to show a mixed picture, with higher retail sales and imports being offset by slight declines in exports and production, the report said.

The further deterioration in sentiment indicators, such as the decline of the Ifo business climate index in June, underscores downside risks for the German economy.

“It is possible that the economic recovery expected in current economic forecasts for this year will be delayed,” the monthly report said.

Germany’s cabinet approved the first draft of its 2024 budget and financial plans through 2027 at the beginning of July, which curb spending that surged in response to COVID-19 and the Ukraine war.

“We have now achieved a first quantitative consolidation,” Finance Minister Christian Lindner said in the report.

Germany will comply with the debt brake that constitutionally limits the budget deficit to 0.35% of economic output and there will be no tax increases, the minister noted.

Lindner said this is just a first step in public finances’ turnaround.

“We have to finance growing defence expenditure in the long term and develop even more room for manoeuvre for future investments.”

($1 = 0.8933 euros)

(Reporting by Maria Martinez; Editing by Tomasz Janowski)