Germany starts budget debate, borrowing plans look optimistic

Tue Sep 6, 2011 12:30am EDT

* German budget draft sees sharply lower 2012 borrowing

* Borrowing looks optimistic in view of recent weaker data

* German finmin to open parliamentary debate at 0800 GMT

By Sarah Marsh

BERLIN, Sept 6 (Reuters) - Germany kicks off a parliamentary debate on its draft 2012 budget on Tuesday but its plans to slash net new borrowing could prove optimistic given recent signs of a slowdown in the economy, which could cut estimated tax revenues.

Finance Minister Wolfgang Schaeuble will open the debate with an hour-long speech at 0800 GMT. The Bundestag lower house of parliament is scheduled to vote on the final budget on Nov. 25.

In its draft budget, Berlin sees net new borrowing falling to 27.2 billion euros in 2012 from 48.4 billion this year on the assumption that tax receipts and revenue from privatisations will increase.

"The government is being quite optimistic here given the worsening economic data," said Ulrike Rondorf at Commerzbank. "I don't think new borrowing will be much lower than last year."

Budget committee members from Chancellor Angela Merkel's centre-right coalition said last week they want net new borrowing to be even lower than the planned 27.2 billion euros, in a bid to speed up budget consolidation.

Germany's economy has been a star performer in the industrialised world since the end of the 2008 financial crisis and has underpinned growth across the euro zone.

But doubts have grown about how much longer the export-driven economy can maintain solid growth rates in light of an expected slowdown in key markets abroad. German growth slowed to 0.1 percent in the second quarter.

According to the budget draft, which was sent to parliament in mid-August, the government sees tax revenues rising to 247 billion euros from 229 billion this year.

But in recent weeks, most institutes have slashed their forecasts for 2012 economic growth, in turn weighing on their expectations for tax revenues.

"We now expect weaker (GDP) growth of around 1.3 percent next year, versus a forecast for 1.8 percent four weeks ago, so that would clearly lead to less-than-expected tax revenue," said Dekabank's Andreas Scheuerle.

"I fear the procedure in the government for agreeing on a budget is such that they cannot take into account the latest developments in the economy."

Berlin already expects the country's deficit to fall to 1.5 percent his year, meeting the Maastricht 3 percent deficit ceiling two years earlier than required.

But fiscal hawks, emboldened to speak up in the light of the euro zone debt crisis, fear these positive figures could tempt the government to spend rather than continue consolidating.

Merkel's cabinet has said it plans to agree on a tax cut for 2013 by November, despite polls showing most Germans would prefer the government to focus on reducing its deficit.

Schaeuble himself has long resisted calls for tax cuts. Most recently, he conceded somewhat and said his ministry would present proposals for reducing a clandestine tax hike after the summer break.

In its draft budget, Berlin sees total spending rising just 0.07 percent next year to 306 billion euros. That includes 40 billion euros on debt servicing, versus 37 billion this year. (Additional Reporting by Matthias Sobolewski; Editing by Susan Fenton)