Germany announced it will balance its budget, achieving zero deficit by 2014—two years sooner than expected. In 2013, the deficit will fall below 0.5 percent.
The biggest factor in balancing the budget deficit is the high revenues collected from taxes. Germany is about to set another record for tax collections this year.
From January until September, the German government has already received 400 billion euros in tax revenue. Last year Germany collected about 600 billion euros. Tax revenues for September were 4.2 percent higher than September 2011, and the year-to-date revenue is up 5.6 percent, according to German broadcaster Deutsche Welle.
Tax revenues are up largely due to a robust labor market. Income tax and private spending are boosting the economy. According to the labor union-affiliated WSI institute (Economic and Social Research Institute) of the Hans Böckler Foundation, German wages will rise 0.3 percent this year, while the wages in the 27-bloc European Union will decline by 0.5 percent. The unemployment rate for Germany is at a two-decade low of 7 percent.
German investor confidence gained for the second month in October. Tax revenues and Gross Domestic Product (GDP) are unexpectedly growing faster than the spending, which is a good sign for any state or company.
“Budget surplus is possible and will be a significant example in Europe,” said German politician Otto Fricke.
Germany, being the biggest EU economy with a zero budget deficit could become an exemplary business model to other EU countries where budget deficits soar, such as in Greece and Spain.
While the German Finance Ministry reported an overall rise in economic activity in the third quarter, “a clear economic weakening” is expected during the fourth quarter, owing to the stagnation and recession in some eurozone economies.
“In total, Germany will have only a 0.5 percent budget deficit this year and from 2014 on, we will have a completely balanced budget. The last time we had balanced budget was in the years of 2007 and 2008—before the Lehman Brothers crisis,” said Wolfgang Schäuble, German finance minister.
If Germany hits the zero percent budget deficit, it will also likely have a positive impact on Angela Merkel’s party during next fall’s German elections.
“On the regional level,” reported Schäuble, “the budget deficits are decreasing, communities and social insurances are making profits.”
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