Global Daily Tax News, Germany Eyeing Medium-Term Fiscal Consolidation Measures, (Oct 29, 2025)

The German Government has projected that further fiscal consolidation measures will be necessary in future, despite the recent focus on fiscal stimulus.

The Finance Ministry said tax hikes will be necessary, despite projections that revenues will rise by a "mid-single-digit billion amount", compared with May 2025 estimates, partly as a result of tax reforms that entered into force this month.

Germany's Government has focused recent reform efforts on encouraging corporate investment in Germany, including through the Location Promotion Act, with most measures to be effective from January 1, 2026, and encouraging work beyond retirement age through the granting of tax concessions.

Federal Finance Minister and Vice Chancellor Lars Klingbeil said: "Our investment package is a strong stimulus for new economic growth. The more positive outlook is also reflected in rising tax revenues. This, above all, strengthens the ability of states and municipalities to act. The federal Government will bear the vast majority of the costs of the growth stimulus package. Therefore, the federal Government will benefit little from additional tax revenue. But we are on the right track, because, for me, it remains crucial to secure jobs in Germany and create the jobs of the future here."

The Finance Ministry said, however, rosier growth and tax revenue prospects do not allay the need for fiscal consolidation. It said: "With an eye on the budget gaps from 2027 onward, we will continue to pursue a strict consolidation course: all ministries will continue to be required to make savings."

The Ministry explained that while state and local governments are expecting higher revenues, federal revenues will be lower than May 2025 estimates starting from 2028.

The Government expects only nominal growth this year, of 0.2 percent, owing, among other things, to international trade tensions. It projects growth recovering to 1.3 percent and 1.4 percent of GDP in 2026 and 2027.