Wednesday, August 5, 2020

The corona crisis leads to dramatic tax losses

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Berlin The tax estimators had already been looking forward to the little trip. The working group meets twice a year, each time it meets somewhere else. The experts would have stopped in Marburg, Hesse, next week. The accompanying program included a city tour, the university town on the Lahn is known for its castle. But nothing comes of it. Because of the corona crisis, tax assessors only meet virtually.

The pandemic determines not only the scope of the meeting, but also the content of the estimate. The corona crisis upset everything, including the tax estimate from last autumn. The unforeseeable economic effects and the tax crisis measures make forecasting more difficult than ever before.

One thing is certain: the tax slumps will be historically high. This year alone, the state will receive around 100 billion euros less tax than was forecast in the tax estimate last autumn, the Handelsblatt learned from circles of appraisers.

The Federal Ministry of Finance had recently assumed that the government would lose 82 billion euros, of which 33 billion euros. Although things will look better next year, there are still serious slumps here: tax estimates expect the federal, state and local governments to lose 40 to 50 billion euros in 2021. Around 20 billion euros of this could go to the federal government.

However, the numbers are still subject to strong fluctuations. Due to the many tax aids and deferrals, the calculations are extremely complicated this time. Exact values ​​will only become apparent in the course of the working group meeting.

But the estimates make one thing clear: the immense costs of the pandemic. Citizens and businesses will feel the financial consequences for a long time to come. It’s not just the tax authorities that are losing revenue. The social security funds are also threatening to slide into the red. In the coming months, politicians will have to decide whether social contributions will increase and where the red pencil has to be budgeted.

The development of tax revenues is not yet clearly foreseeable

The federal government in particular is facing painful cuts, at least according to the Basic Law. The reason for this is the debt brake. The debt rule is suspended due to the corona crisis via the so-called emergency option, but only for one year. The constitutional rule – as of now – is to apply again in 2021. “Then putting the debt brake back into normal operation would be an important calming pill,” says Jens Boysen-Hogrefe from the Kiel Institute for the World Economy.

“Based on the new government forecast, the federal government will have to consolidate 20 billion euros next year according to the debt brake,” says the economist. The rule stipulates this amount due to the significantly weaker potential growth that the Federal Government predicted in its spring estimate.

The development of tax revenues is not yet foreseeable, even according to the tax estimate, politicians will only be able to drive on sight. For example, it is unclear exactly how the tax deferrals, which the federal and state governments have initiated. It is also unclear how much taxes break away, which otherwise fluctuate only slightly.

For example, corporate and sales tax assessors expect much larger fluctuations than usual. “These factors can quickly lead to deviations of 20 billion euros a year,” says one estimator.

The problem is not just reduced tax revenues in the federal budget. The situation of social security is even more worrying. They are earning less as a result of the crisis, while expenditure is rising by leaps and bounds due to the high demand for short-time work benefits. The accumulated reserves of the social security funds of 100 billion euros are melting away.

“Without further policy changes, such as the scope and entitlement to benefits, premium rates will increase in almost all insurance branches. In view of the demographic change, this was already evident and will now accelerate significantly, ”says IfW researcher Hogrefe.

If politicians want to avoid increases in premiums, they would have to support the social security funds either through loans or with tax subsidies from the federal budget. Both are not nice options. Loans would increase the pressure on the Federal Employment Agency to save. Subsidies, in turn, would have a budgetary impact and would tear new holes in the federal budget. And here the scope is narrowing despite a planned new debt of 156 billion euros.

Federal Finance Minister Olaf Scholz (SPD) is expected to spend billions more. In early June, for example, Scholz plans to hold initial talks about an economic stimulus program. That should include at least 50 billion euros, rather more. The federal government will also have to help the municipalities financially in some way. Cities and municipalities have lost all of their income as a result of the shutdown, especially with regard to municipal trade tax.

According to an estimate by the German Association of Cities and Municipalities, there will be a loss of 40 to 60 billion euros in 2020. The federal government has already signaled to the municipalities not to leave them alone. According to the tax estimate, which shows how badly the three state levels are affected, work on a municipal rescue program should be pushed ahead.

The decisive factor will be how long the crisis will last

Scholz still has substantial reserves. In his Corona supplementary budget, for example, he had a margin for crisis-related expenses of 55 billion euros approved. He has planned 50 billion euros for emergency aid to small businesses and the self-employed, of which only twelve billion euros have so far been called up. Scholz could have some money left over here.

In addition, thanks to the budget surpluses of previous years, the finance minister still has a regular reserve in the federal budget of 48 billion euros – which is, however, already recorded in the financial planning. And so it is considered possible in the Federal Ministry of Finance to adopt a second supplementary budget this year. “A debate about it is too early now,” it says in the house.

The decisive factor will be how long the crisis will last. According to the new easing decisions of the federal states, which also start up companies under certain conditions, there is hope that the economy will soon grow strongly again after the hard slump. Then tax revenues would increase again.

The economy itself is less optimistic. Your expectations are almost as bad in the medium term as in the short term. This is shown by a survey of the Institute of German Business (IW) among German companies, which is available in the Handelsblatt. According to this, 60 percent of the companies surveyed expect the strong corona effects to continue throughout 2021.

“A quick return to old production levels is currently not to be expected”, according to the analysis by IW researchers Hubertus Bardt and Michael Grömling. Around a quarter of the companies state that they are currently severely affected by disturbed foreign supply chains, another 45 percent are at least partially. And companies don’t expect anything to change by the end of 2021. 41 percent of companies also expect domestic demand to drop sharply in 2021.

In view of the pessimistic mood among companies, the IW researchers are calling for “a visible and comprehensible scenario of an exit” from the lockdown. “A longer period of economic stagnation would result in self-reinforcing downward effects, the negative effects of which would not be foreseeable.”

Because the economic situation is so uncertain, the federal government is considering making an unscheduled growth forecast in July. It makes sense to be able to plan better, according to the Federal Ministry of Finance. The tax estimators assume that they will then also create an unscheduled tax estimate. Maybe it will be something after the city tour in Marburg.

More: First the short-time work, then the expulsion? – The big job fear

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