Germany: Government presents 2012 budget draft
July 28, 2011
On 6 July, the government presented the budget plan for 2012. According to the document, the government estimates that the fiscal deficit will sink below 2.0% of GDP this year, down from the 3.3% of GDP seen in 2010 and well below the 3.0% of GDP deficit ceiling stipulated in the Maastricht treaty. For 2012, the government expects that the fiscal deficit will shrink further to 1.2% GDP. The country's public finances profit form strong economic growth, which is boosting tax revenues well above the planned levels. The government plans to seize the opportunity of higher income and considers reducing taxes for low and middle-income households before the country's 2013 general election. However, the plans met resistance even from within the government coalition parties, as the tax cuts may jeopardize the target of reaching a balanced budget by 2016, a requirement that was anchored in the constitution in 2009. Critics to the tax cuts claim that the government will have to stem a host of new costs, including an annual contribution of EUR 4.3 billion over a five-year period to the European Stability Mechanism (ESM), the European Union's permanent bailout mechanism.
Author: Ricardo Aceves, Senior Economist