By Michael Nienaber
BERLIN (Reuters) -The three parties working to form Germany's next governing coalition can count on windfall tax revenues in coming years to fund promised investments in a more climate-friendly, digitised economy, sources familiar with the matter said on Monday.
The centre-left Social Democrats (SPD), the Greens and the pro-business Free Democrats (FDP) face a massive spending challenge as they agreed in exploratory talks to return to strict debt limits from 2023 and avoid tax increases.
In welcome news for the parties, the updated tax revenue estimates will show added fiscal room for the federal government of up to 10 billion euros ($11.5 billion) per year, and possibly a bit more, compared with estimates issued in the spring, two sources told Reuters.
Speaking on condition of anonymity, the sources said the windfall tax revenues will be even higher for the 16 states, which under Germany's federal system are in charge of a large chunk of public investments.
For the federal government, states and municipalities together, the updated estimates will bring additional room for public spending "in the mid double-digit-billion-euros range" per year, the sources added.
Outgoing Finance Minister and Chancellor-in-waiting Olaf Scholz is expected to present the latest tax revenue estimates on Thursday when he is also likely to comment on the spending priorities of the next coalition government.
The tax windfall is expected to come from a stronger-than-expected economic recovery from the pandemic, especially in 2022, as well as the overall effects of higher inflation.
The BDI industry association said a pledge by the three parties to refrain from tax hikes was not enough to support companies. It called for additional measures to improve the liquidity of firms and cut back bureaucracy.
BDI Managing Director Joachim Lang said the next government should allow companies to depreciate investments in digitisation and climate protection faster and it should also allow more firms to offset losses.
The three parties are considering various proposals in the ongoing coalition negotiations to create more fiscal firepower for Europe's largest economy through different budget tricks.
Ideas under discussion include higher federal borrowing next year to allow a one-time, multi-billion-euro injection into the government's climate investment fund, delaying the first repayment of coronavirus debt by five years to 2028, and stretching the repayment period to three decades, until 2058.
To spur private-sector investment in a carbon-neutral economy, the three parties - now striving to clinch details of a coalition pact - are also looking into strengthening the role of Germany's KfW state development bank.
In addition, the Federal Environment Office has urged parties to end climate-damaging state subsidies worth up to 65 billion euros a year, such as a reduced tax rate for diesel, tax discounts for company cars and exemptions from energy taxes for industry.
Coalition working groups set up by the three parties are expected to present their policy results as well as unresolved issues to party leaders by Wednesday, who will then try to formulate a coalition agreement by the end of this month.
As part of the horse-trading and coalition wrangling, the parties must also find a compromise deal on who will take control of the powerful finance ministry.
The three parties hope to formally elect Social Democrat Scholz as the new chancellor in the week of Dec. 6, though the Greens have warned the negotiations could take more time.
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