TAX NEWS - June 2010

German Tax: Germany Fin Min says Federal Tax Revenue Down 0.3% Y/Y In May

BERLIN -- German federal tax revenue fell 0.3% on the year in May, but was distorted to the downside by higher transfers to the EU, the Finance Ministry said in its monthly report released Monday.

In the first five months of the year, federal tax revenue was down 2.7% y/y. For the full year, the government's tax estimate commission forecast last month a decline of 5.1%.

Total public tax revenue (excluding local taxes) increased by 1.6% y/y in May. In the January-May period, total tax revenue (ex-local) was down 1.8% y/y, also better than the full-year forecast of -2.6%. The May total tax number was released by the Ministry last week.

Federal revenue (tax intake plus other income) in January-May was down 8.1% y/y compared to a full-year projection in the 2010 budget of -7.3%. Federal expenditures in the same period were up 7.3% y/y, undershooting the full-year budget forecast of +9.3%.

The Ministry reaffirmed that it expects federal net new borrowing to amount only to some E65 billion this year, markedly below the E80.2 billion projected in the federal budget.

The 2010 federal structural deficit is projected by the Ministry at around E53 billion or 2.2% of GDP. Under the country's debt limitation rule, the federal structural deficit has to be brought down to 0.35% of GDP by 2016.

In the economic section of its monthly report the Ministry said current indicators signal a strengthening of the recovery. "GDP growth in the second quarter should be markedly higher than in the first quarter," it said.

This is not due only to a seasonal catch-up in the construction sector, but also to a marked pick-up in the industrial sector, the report observed.

Due to increasing capacity utilisation in the manufacturing sector, the risk of an abrupt spike in unemployment has further declined, the Ministry said.

The economic recovery is still being driven largely by exports, the report noted. Current indicators signal a continuation of the dynamic upward trend of exports, the Ministry asserted.

Private consumption, by contrast, is likely to remain sluggish, it acknowledged.