May 15, 2020 / 11:30 AM / 16 days ago

German government expects to suspend debt brake in 2021: Handelsblatt

BERLIN (Reuters) - The German government expects to suspend its constitutionally enshrined debt brake in 2021 after already doing so this year to tackle the coronavirus crisis, newspaper Handelsblatt on Friday cited government officials as saying.

Asked about the report, a spokesman for the Finance Ministry said the government was dealing with measures for this year. He said an additional tax estimate was being introduced to ensure the government has an exact basis on which to plan any further measures.

Under the German debt brake rule, Berlin is allowed to take on new debt of up to 0.35% of economic output. But it can go beyond that if the country is hit by a natural disaster or “exceptional emergencies” that are beyond state control and significantly affect the state’s financial situation.

In March, the German parliament suspended the debt brake and approved a stimulus package worth more than 750 billion euros ($810.60 billion) to help the economy cope with the fallout of the pandemic. It would need to agree again to suspend the debt brake for next year.

Data published on Friday showed Germany’s economy slumped in the first quarter at its steepest rate since 2009. Germany did not go into lockdown to slow the spread of the virus until around mid-March, so the bulk of the impact of those curbs will only become apparent in second quarter data.

Handelsblatt said the debt brake for next year would only allow maximum net borrowing of 17 billion to 18 billion euros.

German Finance Minister Olaf Scholz said on Thursday that a massive plunge in tax revenues would not stop the government from presenting a stimulus package next month to help companies recover from the coronavirus crisis.

Germany expects tax revenues at all state levels to be 98.6 billion euros lower this year than previously projected, a document by finance ministry officials and tax experts showed.

In the medium term until 2024, the hole in tax revenues for federal and state governments as well as municipalities is seen widening to 315.9 billion euros.

Joerg Kukies, deputy finance minister, on Friday said Germany had fiscal wiggle room.

He said the debt-to-GDP ratio would likely rise towards 75% because of the coronavirus - up from 60%. That would nonetheless be below the level reached during the 2008/2009 global financial crisis, when the ratio ballooned by roughly 18 percentage points from 64% in 2007 to 82% in 2010.

Reporting by Michelle Martin; Additional reporting by Christian Kraemer and Thomas Seythal; Editing by Paul Carrel and Barbara Lewis

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