Germany could face budget deficits for years to come

The prospect of budget deficits would represent a dramatic deterioration in the finances of Europe's biggest economy, reports Finance Minister Olaf Scholz.
The prospect of budget deficits would represent a dramatic deterioration in the finances of Europe's biggest economy, reports Finance Minister Olaf Scholz.PHOTO: AFP

BERLIN (REUTERS) - Germany faces a €25 billion (S$38.7 billion) budget shortfall by 2023, unless it tightens spending, as tax revenues are set to fall and public sector wages are on the rise, Bild newspaper reported, citing an internal government document.

The prospect of budget deficits would represent a dramatic deterioration in the finances of Europe's biggest economy, which reported a €11.2 billion budget surplus last year.

The warning came in a report prepared by Finance Minister Olaf Scholz to his ministerial colleagues as they prepare for a regular budget planning discussion.

Trade tensions between China and the United States and the possible impact of a disorderly British exit from the European Union have already prompted Germany to slash its growth forecast for this year to 1 per cent as a decade-long boom in Europe's economic powerhouse draws to a close.

In this tougher environment, a lower tax take will tear a €5 billion hole in the budget each year, Bild reported.

A €25 billion shortfall would mean a budget deficit of less than 1 per cent of Germany's current gross domestic product.

Still, Bild added that ministries were warned at a budget planning meeting last week to keep costs under control, partly because of the rapid growth of the government wage bill, which is expected to swell to €35 billion in 2020, from €31 billion in 2016.