The improved economy brings additional tax revenue to the federal government. Why Finance Minister Lars Klingbeil hardly benefits from this - and what role the labor market plays.
A worker stands on a scaffolding: Despite an improved economy, the number of unemployed remained above the three million mark in August. Photo: David-Wolfgang Ebener/dpa/dpa-tm
Berlin. According to experts, the unexpectedly robust economy is putting more money into Federal Finance Minister Lars Klingbeil's coffers. Due to the higher growth, additional income for the federal government of around three billion euros can be expected this year, said financial expert at the Mannheim Center for European Economic Research (ZEW), Friedrich Heinemann, to the Reuters news agency.
“The upward correction in 2026 growth is encouraging, but it will not significantly help the federal budget,” was Heinemann’s conclusion. The gross domestic product has recently increased for three quarters in a row, while the Ifo business climate barometer reached its highest value in a year in August.
The Federal Association of Volks- und Raiffeisenbanken therefore doubled its forecast for economic growth this year from 0.5 to 1.0 percent, the union-affiliated IMK expects “at least 1.1 percent,” while KfW Research went up from 0.7 to 1.1 percent.
“The fact that tax revenues do not react more strongly is due to the slump in employment,” said ZEW expert Heinemann in the conversation published on Sunday. “The higher growth means relatively little employment and therefore brings less money into the coffers via the progressive income tax.”
Despite better economic prospects, the number of unemployed remained above the three million mark in August. The Federal Employment Agency (BA) reported 3.061 million people without a job, 54,000 more than in July. “Even in August there was little dynamism on the labor market beyond the usual seasonal pattern,” said BA boss Andrea Nahles.
Why more growth hardly gives the budget any breathing room
According to Heinemann, the permissible new debt will be reduced if growth increases as a result of the so-called economic component of the debt brake. “If growth increases, the amount of new debt permitted by the economy decreases,” explained the economist. “This effect should largely compensate for the additional tax revenue.”
What would really help the budget would be an increase in potential growth – i.e. the sustainable growth prospects, said Heinemann. “The government is currently making good gains here with its serious reforms in pensions, health and taxes.”
If this positive reform course is maintained despite the resistance of many who have concerns, then it could give the federal budget more breathing room in the medium term. “The current morning climate in terms of growth is still just a snapshot – but it should motivate continued courageous reforms.”
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