Germany forecasts big hole in tax receipts

Germany on Thursday forecast a massive fiscal deficit, highlighting the perilous state of its public finances and giving beleaguered chancellor Angela Merkel little room to deliver on promised tax cuts.

The government's tax income will be lower than expected this year and for several years to come, the finance ministry said, underlining questions about prospects for tax cuts in Europe's biggest economy. The ministry said that a regular meeting of experts estimated this year's tax take at 510.3 billion euros - 1.2 billion euros short of their previous forecast in November. Last year's total income was 524 million euros.

Germany, quick to lecture Greece over its debt crisis, has considerable fiscal problems of its own that were exacerbated by its biggest recession since World War II last year when output shrank five per cent.

Now pressing for tougher European Union rules on deficits in light of the Greek turmoil, Germany itself expects to borrow around 80 billion euros this year and to spend far more than it earns.

The country, which recently lost to China its crown as the world's biggest exporter, is also faced with an ageing population, which squeezes government income while at the same time expanding its spending needs.

The European Commission forecasts Germany's budget deficit this year to reach some five per cent of gross domestic product, well above the three per cent limit set out in the 27-nation bloc's fiscal rulebook. Berlin is even more pessimistic, forecasting six per cent.