Thursday

9th Apr 2020

German tax shock - 126bn euro missing

The Germans have received yet another shock relating to their bad economy. In a press conference in Berlin, Finance Minister Hans Eichel, yesterday (15 May) announced that for the period 2003 to 2006 the German state would take in some 126 bn euro less than was expected.

"We face a situation, of missing taxes up to 2006 corresponding to half of the federal budget," Mr Eichel warned.

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"We are continuously living beyond our means," the finance minister said and added there was no alternative other than economic reforms and moves to trim back German welfare.

The German conservative opposition immediately called on Mr Eichel to step down, while the leader of the Liberal FDP party, Guido Westerwelle, wants new elections to be held.

The news also added further pressure on the European Central Bank to lower interest rates in order to boost the economy.

In 2002, Germany breached the euro zone rules with a budget deficit of 3.6 per cent. The rules only allow a budget deficit of 3 per cent of GDP. Germany looks set to overshoot the euro zone budget deficit limits once again, in 2003.

The German economy makes up a third of the economy of the 12-country eurozone and the country is the largest single contributor to the EU budget. Germany pays some 24.4 per cent of the EU annual budget; the second largest contributor is France (16,7%) and the third largest is the UK (14,3%).

Huge tax cut for Germany

The cut will mean the German government will have to borrow more, further undercutting EU budget rules.

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EU leaders failed to reach agreement on the EU's long-term budget, as richer states and poorer 'cohesion countries' locked horns. The impasse continues over how to fund the Brexit gap.

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Cuts to innovation, space, neighbourhood and other programme-spending push down the latest budget proposal on the table of EU leaders. Rebates could stay on, to win the support of the net-payers for a deal.

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EU leaders arriving at the Brussels summit criticised the budget proposal of EU Council president Charles Michel, as richer member states insisted holding onto their rebates, while poorer countries wanted to avoid deep cuts to their subsidies.

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