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To: Haim R. Branisteanu who wrote (166342)	5/16/2002 8:24:30 PM
From: Haim R. Branisteanu	Respond to of 436258

Germany cuts tax estimates, says budget goal stands May 16, 2002 09:25 AM ET By Nick Antonovics BERLIN, May 16 (Reuters) - Germany cut tax revenue estimates for 2002 and following years on Thursday, but insisted a budget pledge given to its European Union partners could be met if an expected economic recovery sets in. Finance Minister Hans Eichel insisted the forecasts did not call into question the EU promise made in February to get the country's budget deficit "close to balance" by 2004. "If the economic recovery that everyone expects sets in, we will meet this goal. However, there is no room for extra spending programmes or further measures that limit revenues," Eichel said. Germany's conservative opposition, enjoying a lead in opinion polls ahead of a September 22 general election, claimed the data showed the Brussels promise was unrealistic. Analysts also doubted the goal could be reached without extra steps to curb spending at national and regional levels. HypoVereinsbank analyst Andreas Rees said the bank believed an agreement struck in March between the federal government and the regions to curb spending over the next two years was not in itself enough to meet the goal. "It will only work if spending can be frozen at the level of 2001," he said, saying this meant extra cutbacks were needed. MULTI-BILLION EUROS SHORTFALL Eichel insisted the shortfall did not threaten the federal government's aim to reduce new borrowing to zero by 2006. "The forecasts pose no risks to the current (2002) budget. We have the budget in hand and expect not to have to overshoot our borrowing target. We are firmly on course to achieving a balanced (federal) budget in 2006," Eichel said. "However, the new figures don't make our job any easier. They confirm once again the urgent need to consolidate the budget." The total public sector budget deficit last year was 2.7 percent of gross domestic product and is expected to be at least 2.5 percent this year. The government interprets "close to balance" as meaning a deficit of 0.5 percent of GDP, or around 10 billion euros. In a statement released after a twice-yearly meeting of budget experts, the finance ministry said total public sector tax revenues this year were now expected to be 454.8 billion euros, 7.7 billion euros less than forecast last November. Over 2003-04 the combined shortfall compared with estimates made last May was 35.2 billion euros. At the federal level, 2002 revenues were put at 196.4 billion euros compared with a 196.9 billion euros last November. The finance ministry says an assumption of 199.2 billion euros tax revenues used as a basis for the 2002 budget is not directly comparable to the data, as it did not take account of tax breaks included when the twice-yearly estimates are made. Eichel blamed the downward revision mostly on the country's economic slowdown last year, when growth came in at just 0.6 percent against expectations of over 2.5 percent. EICHEL STICKS TO GROWTH FORECAST Eichel repeated he was sticking to the government's forecast that growth this year would be three quarters of a percent. Economy Minister Werner Mueller said separately on Thursday he personally expected growth of at least 1.0 percent. "(The government) are sticking to this forecast, despite criticism that we are being too pessimistic...as I prefer to be pleasantly surprised later," Eichel said. Special factors were also to blame for the shortfall, Eichel said. He cited exploitation by companies of new rules allowing them to claim back taxes on retained earnings paid out as dividends, and said it appeared the introduction of euro cash had dampened consumption, hitting sales tax revenues. The tax estimates published on Thursday will form a basis for drafting the 2003 budget, due to be presented on June 19. The budget itself will not be adopted until after the country's September 22 general election and is likely to be amended before then to take into account fresh tax revenue estimates to be made in the autumn. In the case of a change in government, the budget would probably be completely amended.