Germany hails budget surplus

23rd August 2007, Comments 0 comments

13 August 2007, Berlin (AFP) - Germany recorded its first real surplus in its public accounts since reunification in 1990 in the first half of the year, underscoring the health of the economy and handing a mid-term boost to Chancellor Angela Merkel.

13 August 2007

Berlin (AFP) - Germany recorded its first real surplus in its public accounts since reunification in 1990 in the first half of the year, underscoring the health of the economy and handing a mid-term boost to Chancellor Angela Merkel.

Preliminary figures released by the federal statistics office on Thursday showed a modest surplus of 1.2 billion euros (1.6 billion dollars), which amounts to 0.1 percent of the country's gross domestic product (GDP).

The public accounts include spending at the federal, regional and local levels, as well as the social security budget.

The surplus is due to a solid 10.4-percent increase in tax revenues, which is partly the result of value added tax (VAT) being raised to 19 percent from 16 percent at the beginning of the year.

The accounts were also boosted by relatively low public spending, which showed an increase of only 0.7 percent.

The surplus is giving more cause for celebration than one recorded in the second half of 2000, when revenues were inflated by the auction of licences for third-generation mobile phones.

The surplus in the first half can be considered the first "real" surplus because it has been generated by structural adjustments in the way the government raises and spends money.

It sends a strong signal that Merkel's government is within reach of its stated aim of balancing the country's budget, after the huge expense of reunifying Germany after the fall of the Berlin Wall.

The cost of reintegrating former communist eastern Germany contributed massively to a persistent budget deficit which Berlin only managed last year to bring within an EU limit of 3.0 percent of gross domestic product.

In Brussels, a European Commission spokeswoman said the news was "something to be welcomed quite obviously," but she stressed that the data "should not lead the the German government or any other government to relax its efforts."

If the tables are at last turning, it is above all a reflection of the robust health of the eurozone's biggest economy after long years in the doldrums.

Germany last year experienced GDP growth of 2.9 percent, something last seen in 2000.

The economy seems set to stay the course this year, thanks to strong investment and exports that have largely withstood the impact of the surging euro.

Merkel and her government have made clear that despite the good news on the economic front, belts will remain tightened until the budget deficit is a thing of the past.
The finance ministry on Thursday welcomed the surplus, but firmly ruled out any tax cuts -- which have been called for by German business organisations.

"It is very satisfactory," a spokesman for the ministry told AFP.

"But we must continue to balance the budget, so there is no question of cutting taxes," he added.

The ministry pointed out that even though the public accounts were out of the red at last, the federal budget would still show a big deficit this year.

"The federal state will again have a deficit of tens of billions of euros this year."

Finance Minister Peer Steinbrueck told the business daily Handelsblatt: "Those who are now calling for tax cuts are shamelessly pursuing the policies that made Germany build up a mountain of debt."

In the first half of 2006, Germany had a public deficit of 23 billion euros.

The government has forecast a deficit of 0.5 percent of GDP on public accounts for the whole of 2007 and hopes to balance it in 2010.

Economists are more optimistic however and even the traditionally cautious central bank is saying the books could be in the black this year still.

AFP

Subject: German news

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