Germany’s economy is facing a significant challenge as the country’s tax income is projected to drop by billions of euros over the next four years. According to the Council of Economic Experts, the federal government alone is expected to collect €33.3 billion ($37.3 billion) less in tax revenue through 2029. This downward revision is attributed to the economy’s sluggish performance and a major tax relief package included in the federal government’s budget bill.
The forecast cut reflects a general economic downturn, with tax income projected to fall €600 million short of previous expectations this year. A significantly larger shortfall of €10.2 billion is anticipated in 2026, although a slight improvement in tax revenues is expected from 2027 onward. On average, tax revenues are forecast to fall short by around €16 billion annually compared to the October 2024 estimate, with the federal government facing an average annual shortfall of about €7 billion.
Finance Minister Lars Klingbeil described the economy as remaining “in turbulent waters,” emphasizing that boosting revenues through higher economic growth is the only way to gain new financial leeway. The latest revenue figures are expected to complicate efforts to finalize the new government’s budgets for this year and next. The federal government has been operating under a provisional budget since the beginning of the year, after former Chancellor Olaf Scholz’s coalition collapsed in November 2024.
In response, Klingbeil announced that a revised version of the 2025 draft budget would be presented for cabinet approval by the end of June. The bill will include tax relief for companies to spur growth and legislation to establish a €500 billion infrastructure fund. The draft 2026 budget is expected to follow soon after. With Germany being the only G7 economy to register no growth over the past two years, the revival of its sluggish economy is a top priority for the new government. According to the International Monetary Fund, Germany is projected to remain at the bottom of the G7 in 2025, with just 0.1% growth.
The challenges facing Germany’s economy are clear, and the government is under pressure to find solutions to stimulate growth and improve tax revenues. As the country navigates these turbulent waters, it remains to be seen how effective the proposed measures will be in reviving the economy and addressing the significant shortfalls in tax income.