BERLIN (Reuters) - Conservative Finance Minister Wolfgang Schaeuble on Thursday announced higher tax revenue estimates for this year and rejected criticism that Germany was not investing enough, saying the country had doubled funds for infrastructure projects.
Schaeuble raised the estimated tax revenue for this year by 7.9 billion euros and promised income tax cuts to low-and middle-income households after a federal election on Sept. 24 that would amount to some 15 billion euros each year.
Just over four months before voters in Europe’s largest economy go to the polls, political opponents seized on the plush tax estimates to demand more investments on education and more funds for households who do not earn enough to pay income tax.
Economists and business lobby groups demanded an overhaul of Germany’s tax system, namely steeper tax relief that would boost consumption and growth and a lower corporate tax rate that would encourage private investments.
“The federal government has delivered on its fiscal promises. First we balanced the federal budget, then we made additional funds for investments available,” Schaeuble said.
“Now tax cuts can follow in the next legislative period,” said Schaeuble, an ally of Chancellor Angela Merkel, who has said she backs his fiscal prudence.
The Social Democrats (SPD), Merkel’s junior coalition partners, are seeking to unseat her on a platform of extending Germany’s economic success to millions of Germans in work but remain threatened by poverty.
The SPD echoes criticism from the International Monetary Fund and European Commission that Germany has room to lift investments on hard and digital infrastructure, which would help reduce its current account deficit and benefit weaker euro zone peers.
“We now need a clear economic path that secures inclusive growth, meaning growth that reaches everybody: investments should be a priority,” said Economy Minister Brigitte Zypries of the SPD, who are trailing the conservatives in polls.
“Investments should be a priority.”
Germany invested about 2.2 of output on roads, bridges schools and kindergarten each year on average between 2005 and 2014, significantly lower than the average of 3.3 percent among members of the Organisation for Economic Co-operation and Development (OECD).
A study by the Bertelsmann Foundation think-tank found that should Germany boost investments to the OECD average, its economy would grow 1.6 percent each year on average until 2025 -instead of 1.4 percent if investment levels remain at their current level - and tax revenue would grow by 80 billion euros.
Schaeuble has said he prefers to use the higher tax revenues made possible thanks to steady growth fueled by consumption, a robust labor market, a booming construction sector and higher state spending to reduce public debt.
“Public investments are not the problem in Germany, the IMF says so too,” Schaeuble said. “We lack the capacity,” he added, lamenting the failure of Germany’s 16 states and thousands of local communities to tap into federal funds for infrastructure as they remain overwhelmed by the influx of 1.1 million asylum seekers who arrived here over the last two years.
The DIHK Chambers of Commerce and the BGA trade and wholesale association said the higher tax revenue estimates were a clear sign that Germany should lower its corporate tax which stands at about 30 percent, one of the highest in the OECD.
“Tax relief for businesses is long overdue,” said DIHK President Eric Schweitzer. “Tax relief would make Germany more attractive for highly qualified professionals, which our economy is desperately seeking.”
For the longer 2017-21 period, the German state is projected to have a higher tax take of 54.1 billion euros compared to the previous estimate.
Friedrich Heinemann of the ZEW economic institute said with such figures the government should have enough fiscal room to reform the tax system and increase investments.
“Tax reforms cost money, but they also bring growth impulse on the longer term through investments, employment and consumption,” said Heinemann.
“Politicians are uninspired and one-sided if they always use tax revenue only on state spending.”
Editing by Madeline Chambers and Pritha Sarkar