Germany reveals 40-billion-euro tax hole

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The German government forecast a massive fiscal hole on Thursday, giving Chancellor Angela Merkel precious little room to deliver on tax cuts promised in her 2009 re-election campaign.

Figures from the finance ministry showed that tax receipts over the period 2011 to 2013 would be almost 39 billion euros (50 billion dollars) less than predicted last year.

Germany, quick to lecture Greece over its debt crisis, has considerable fiscal problems of its own that were exacerbated by its biggest recession since World War II last year when output shrank five percent.

Europe's biggest economy, now pressing for tougher European Union rules on deficits in light of the Greek turmoil, expects to borrow around 80 billion euros this year and to spend far more than it earns.

Its budget deficit is forecast by Brussels to reach some five percent of gross domestic output (GDP) this year, well above the three percent limit set out in the 27-nation bloc's fiscal rule book.

Greece, by comparison, is forecast to record a deficit of 9.3 percent of GDP, according to forecasts this week from the European Commission. Portugal's is seen at 8.5 percent and Spain's at 10.2 percent.

Merkel ditched her previous coalition partners in elections in September in favour of a tie-up with the pro-business Free Democrats (FDP), promising to alleviate taxpayers to the tune of 24 billion euros.

Merkel and her Finance Minister Wolfgang Schaeuble have indicated in recent weeks however that there will be no tax cuts before 2012. On Sunday a key state election could lose her coalition its majority in the upper house.

© 2010 AFP

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