Germany is set to experience a significant decline in tax revenues, with federal, state, and local governments expected to see a combined shortfall of €17.8 billion in 2026, according to the latest tax estimate released on Thursday. Of this total, €6.8 billion is attributed to already enacted changes in tax law, while a further €11.0 billion reflects deviations from projections made in October.
Federal Finance Minister Lars Klingbeil attributed the revenue losses primarily to the economic fallout from the Iran war.
The tax estimate projects total revenue losses of €87.5 billion by 2030. This figure includes €39.8 billion in estimation deviations. “The results show how hard the Iran war is hitting us economically,” said Klingbeil. The “irresponsible war” of US President Donald Trump and the resulting global energy price shock “are slowing the positive economic momentum for the time being”.
For the current year, the federal government alone is expected to face tax shortfalls of €9.9 billion, including €4.5 billion in deviations from the October forecast. Germany’s federal states are projected to lose €3.0 billion, while municipalities are expected to face €4.3 billion in reduced revenues. The remaining losses are tied to contributions to the European Union. Compared to the federal government, tax law changes play a smaller role in the revenue declines for states and municipalities.
Klingbeil noted that the updated tax estimate will also impact the federal budget for 2027, creating an additional consolidation requirement of €1 billion. Other expected revenue shortfalls for next year have already been incorporated into the budget framework approved by the cabinet at the end of April. He emphasized that restoring stronger economic growth remains the government’s primary objective.
Klingbeil expressed skepticism regarding potential tax relief measures. He stated that the planned reform of income tax should remain “revenue-neutral”. Opposition parties, particularly the conservative bloc, have been pushing for more substantial tax cuts. Klingbeil, however, stressed: “We are still in the middle of the consolidation process”.
He added that fiscal pressure will remain high in upcoming budget negotiations. Municipalities are expected to be particularly affected, largely due to declining revenues from business taxes.
The Greens criticized the government’s tax strategy in light of the financial challenges. Their budget policy spokesperson Sebastian Schäfer told AFP that tax cuts used as a “holding bonus for Markus Söder” would not stimulate growth, nor would what he described as “the wrong handling of the special fund”. He specifically pointed to the VAT reduction for the hospitality sector pushed through by the CSU.
The Left Party called for abandoning planned corporate tax cuts. Finance expert Christian Görke argued that the funds would “almost completely end up with the wealthy, without companies investing more as a result”.
Business leaders and labor representatives have sharply differing views on how to address the fiscal gap. “The central budget problem lies with spending, not with revenues,” said Tanja Gönner, Managing Director of the Federation of German Industries (BDI), calling for cuts in consumption-related spending.
In contrast, the German Trade Union Confederation warned against measures that would burden citizens. “Anything that burdens people in the country is bad for purchasing power, domestic demand and economic recovery,” said DGB board member Stefan Körzell. He instead advocated for reinstating the wealth tax and eliminating privileges in inheritance tax.
From breaking news to thought-provoking opinion pieces, our newsletter keeps you informed & engaged.
