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German coalition parties can count on windfall tax revenues

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BERLIN (Reuters) – The three parties working to form Germany’s next governing coalition can count on windfall tax revenues to fund some of their election promises such as higher public investments in climate protection and digitalisation, official estimates showed on Thursday.

Werner Gatzer, State Secretary at the Federal Ministry of Finance and German acting Finance Minister Olaf Scholz attend a news conference on Germany’s tax estimate in Berlin, Germany, November 11, 2021. REUTERS/Annegret Hilse

Outgoing Finance Minister and Chancellor-in-waiting Olaf Scholz told reporters in Berlin he was more confident now that his centre-left Social Democrats (SPD), the ecologist Greens and the business-friendly Free Democrats (FDP) could bridge remaining differences in negotiations and seal a coalition agreement before the end of this month.

“One shouldn’t count one’s chickens before they’re hatched. But it’s looking good so far,” Scholz said.

This would allow the three parties to stick to their agreed timetable in which Scholz should be elected by parliament as successor of Chancellor Angela Merkel in the week from Dec. 6.

The better-than-expected tax revenue estimates have provided “a lot of leeway (in the budget) that has now even become a bit bigger,” Scholz said.

The federal government can now expect tax revenues for 2021 to 2025 to come in 71.7 billion euros above previous projections as the recovery from the pandemic and overall inflation effects are pushing up tax receipts.

For all state levels, including state governments as well as municipalities, tax revenues from 2021 to 2025 are seen nearly 180 billion euros higher than projected in May.

“This gives the SPD, Greens and FDP a little more financial leeway in their coalition talks, but is by far not enough to resolve the conflicts between them on fiscal policy,” Commerzbank economist Ralph Solveen said.

During the news conference, Scholz did not give details from the coalition talks, held secretively over recent weeks in undisclosed locations across the German capital.

Scholz emphasized the overall pledge of the three parties to increase public spending in the switch towards a carbon-neutral and more digitalised economy which would also help to strengthen the overall recovery from the pandemic.

“We want to continue supporting this trend with record investments in digitisation, scientific research and climate protection,” Scholz said.

Despite the windfall tax revenues, the next government will have to use an emergency clause in the constitutionally enshrined debt brake for the third consecutive year in 2022 to allow net new debt of some 100 billion euros in the fight against the pandemic as suggested by the outgoing government, Scholz said.

After years of balanced budgets and fiscal prudence, Merkel and Scholz have financed COVID-19 emergency measures with record new borrowing of up to 240 billion euros this year and more than 130 billion euros last year.

Scholz and other top party officials will meet on Monday to take stock on the progress reached so far in the coalition talks and sound out lines for compromise in still disputed issues.

Reporting by Michael Nienaber; Editing by David Gregorio

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