Finance Minister von Weizsäcker: "The result of the tax forecast seems positive only at first glance. The forecast assumes that the tax decline caused by the Ukraine war will be more than compensated by inflation-related additional revenues. However, revenues from 2023 onwards carry significant downward risks – given the crisis and possible further relief measures for citizens in crisis. It should also be noted that the state's scope for action in the forecast period is unlikely to increase in real terms due to price increase effects. Together with the budgetary needs and the investment requirements for accelerated transformation, great restraint in non-investment public spending will be necessary in the coming years."
On Wednesday (2.11.2022), Finance Minister Jakob von Weizsäcker announced the figures of the regionalized tax forecast for Saarland. Finance Minister Jakob von Weizsäcker emphasized in light of the presented figures: "The uncertainties are high, the transformative challenges for the Saarland economy are enormous, and the price increases will pose a challenge for the state on the expenditure side. Therefore, the presented tax forecast is only pleasing at first glance. The current figures do not change the necessity to declare an extraordinary emergency situation for Saarland for the year 2022. Only in this way can the measures be financed to manage the transformation of the Saarland economy, which has become more expensive and accelerated due to the energy price explosion."
As has already become apparent in the current year, tax revenues are developing positively in the short term due to inflation. However, this is offset by significant inflation-related budget burdens that are expected to continue to rise. The additional tax revenues of €135 million now expected for the current year will help to strengthen crisis preparedness and build up the transformation fund.
For the upcoming fiscal year 2023, after deducting the reduced tax revenues resulting from currently foreseeable tax law changes, there remains a surplus of €10 million compared to the government draft. However, significant additional expenditures, for example in housing benefits, are emerging. For the years following 2023, gradually increasing additional revenues are projected compared to the recently adopted financial planning, which however are insufficient to compensate for the action needs identified as global expenditure reductions in the current financial plan. Furthermore, significant inflation-related additional burdens are not yet fully reflected in the financial planning. Therefore, the need for further consolidation measures remains.
The federal government's autumn projection assumes that economic growth will slow to a GDP increase of 1.4% in 2022. In 2023, real GDP is even projected to contract by 0.4%. It is not until 2024 that economic recovery begins, with a GDP increase of 2.3%. Whether the economy and inflation will develop as the federal government expects in the autumn projection, which forms the basis for the tax estimate, remains to be seen. Given the high uncertainties, the current tax estimate for the following years should be regarded more as a possible scenario, burdened with considerable downside risks.
Additional steps for tax relief for citizens are already being discussed today by the Federal Minister of Finance, alongside the measures currently undergoing parliamentary procedures. These additional relief measures would result in further reductions in tax revenue for the federal states. This must be taken into account in the regionalization of the tax estimates and the interpretation of these regional tax data.
The Working Group on Tax Estimates usually estimates tax revenues based on the applicable or enacted tax law. However, forward-looking budgetary and financial planning requires additionally taking into account the financial impacts of foreseeable tax law changes. The scope of these planned, but not captured by the Working Group, tax law changes is considerable at the present time.
Minister von Weizsäcker said: "The measures already in the legislative process, such as the Inflation Compensation Act, the relief measures as part of the 2022 Annual Tax Act, and the inflation bonus alone will lead to a loss of revenue in the Saarland state budget amounting to €87 million in 2023 up to €120 million for 2026/2027. In addition, there are the scheduled further stages of inflation compensation for 2025 and 2027, as well as the Federal Government's announcement of additional relief measures, which have not yet been specified."
About one fifth of the additional tax revenue benefits the Saarland municipalities through the municipal financial equalization. The current tax forecast offers a positive outlook for the municipal level both nationwide and for Saarland. With estimated additional tax revenues of approximately 44 million euros in 2022 and about 21 million euros in 2023, the municipalities in Saarland can likely compensate a significant part of their increased expenditure burdens. Additionally, there are rising payments from the state through the municipal financial equalization. However, high uncertainties and inflation effects must also be considered here, affecting all levels of the federal system.
Background:
The 163rd meeting of the working group "Tax Estimates" took place from October 25 to 27, 2022, as an in-person event in Dessau.
The sequence of meetings of the Tax Estimates Working Group is aligned with the schedules of budget and financial planning. Two meetings take place each year. In mid-May, a tax estimate is made for the medium-term period (current year plus four subsequent years). At the end of October/beginning of November, a second tax estimate is made for the medium-term period (current year plus five subsequent years).
