A powerful rise in German tax revenues in June, fuelled by strong increases in revenues from consumers and corporations, has delivered further evidence that a recovery in Europe's biggest economy may be gaining pace.
The German finance ministry said at the weekend that federal tax income - a key barometer of economic activity - jumped 5.3 per cent in June and was up 0.5 per cent in the first half, a big turnaround from the first quarter when federal revenues fell 5.1 per cent.
The ministry, which will publish full first-half tax data in its July monthly report today, put a special emphasis on a 3.4 per cent rise in sales tax revenues in June as a sign of an accelerating recovery.
"The increase in the sales tax is an especially delightful development," the ministry said in a statement. "That's an important sign for the improving outlook in the economic conditions for the retail sector." Although the German economy has stagnated, with growth of less than one per cent since 2001, chancellor Gerhard Schröder has said he is confident growth is picking up and will reach two per cent in 2004 -- thanks in part to a big income tax cut.
Other recent barometers - such as the Ifo business climate index and the ZEW economic expectations indicator - have also offered signals of an expanding economy. The euro's recent retreat on the dollar is a further boost for exporters.
Germany's income tax cuts slated for 2004 would put more than €15 billion into consumer pockets. Polls and some analysts have attributed a sudden brightening of the outlook to the tax cuts and other pro-business reforms steps Schröder has taken.
"More money in peoples' pockets, rising share prices and the government moving head with reforms - that's what is needed to get consumers spending again," Mr Robert Weitz, chief economist at the HDE Retailers Association, said.
The income tax cuts, designed to revive growth in Europe's biggest economy, were originally set for 2005 but are to be brought forward by a year. They come on top of another cut set for 2004. Together, they bring the top rate down to 42 per cent from 48.5 per cent and the bottom rate to 15 per cent from 19.9 per cent.
Retailers are benefiting from the government's reform of store-closing rules, relaxed in June. Some retailers have reported sharp sales gains and collect up to a third of their Saturday revenues in the four extra hours to 8 p.m.
In June, the Ifo research institute said its business sentiment indicator rose strongly in June for the second consecutive month on improving domestic demand.
The Centre for European Economic Research (ZEW) said its German expectations indicator jumped by 20.6 points in July to 41.9, its highest in almost a year, boosted by a stock market rebound and the government's reform plans.
"The government's tax reforms are an important signal," said Mr Ludwig Georg Braun, president of the German chambers of commerce and industry (DIHK).
Another indicator, the GfK consumer sentiment index, rose in July, spurred by the tax cut prospects and boosting hopes domestic demand will help Europe's largest economy back on the road to recovery, a survey showed last Friday.
A poll by the Electoral Research Group published at the weekend found the percentage of Germans who see the economy picking up has climbed in the last month.
The Politbarometer survey of 1,272 Germans found 34 per cent expect the economy to go further down hill, a figure below the 45 per cent who held that view a month ago. Some 18 per cent expect growth to pick up, an increase from 12 per cent in June. - (Reuters)
