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Law360 (May 11, 2020, 1:39 PM EDT) -- Germany must resist the urge to raise taxes as revenue declines during the COVID-19 pandemic since higher taxes would harm recovery, a business group said Monday ahead of a meeting of experts tasked with helping the government assess future revenues.
The comments from business group BDI came ahead of this week's meeting, which concludes Thursday and should shed light on what impact the pandemic is expected to have on tax revenues in Europe's largest economy.
Forecasts published by the European Commission last week project that Germany's economy will decline by 6.5% this year and that its budget deficit will balloon to 7% of gross domestic product next year before bouncing back to a surplus in the following year.
The BDI said Monday that even with the government having to spend unprecedented sums of money in the face of the pandemic, raising taxes would be the wrong solution to balancing the budget.
"The economy is suffering under the current stress caused by the corona crisis," the BDI's managing director, Joachim Lang, said in a news release referring to the novel coronavirus, which causes COVID-19, a respiratory disease.
"It is counterproductive for sections of politics to discuss higher taxes," Lang said. "Tax increases are poison for the upcoming rebuilding."
Germany is one of the more fortunate countries in Europe in that its ability to balance its budget in recent years means that it can borrow money on the markets at negative yields, meaning that investors effectively lose money if they hold German bonds to maturity. This gives Germany scope to borrow as needed.
"There is no need to raise taxes in Germany, if we are just talking about the fallout of corona: Interest rates are so low that even a large increase in public debt — say, 20% of GDP — does not increase Germany's annual spending on interest rates at all," Christian Odendahl, chief economist at the Center for European Reform, told Law360.
Lang also said that the country's corporate tax system was outdated and that this prevented required investments and necessary restructuring.
The BDI has been critical of Germany's tax policies for some time, having recently argued for lower corporate tax rates and changes to make it easier for companies to claim back taxes paid to balance expected losses this year.
The BDI didn't respond to a request for additional comment.
Germany's Finance Ministry declined to comment on the BDI's remarks but referred to a speech that Finance Minister Olaf Scholz delivered Monday to a virtual conference of tax advisers. Scholz said then that the country was working to modernize corporate tax.
"We are improving the opportunities for business tax to take income tax into account, which should help some companies to get out of the crisis," he said.
He also said that government intervention in the economy accentuated the need for all participants in the economy to pay the tax they owe.
"Strong shoulders carry more because they can," Scholz said. "We will ensure that everyone, especially large companies and especially those accepting public aid, do their fair share."
--Editing by Robert Rudinger.
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