Finance Minister Olaf Scholz addresses a news conference to present the results of the latest tax revenue estimate in Berlin, Germany, May 9, 2019. REUTERS/Fabrizio Bensc
BERLIN (Reuters) – German Finance Minister Olaf Scholz is flirting with a higher tobacco tax to plug a multi-billion-euro gap in the federal budget and boost Berlin’s fiscal strength to counter the effects of a slowing world economy, government sources said on Monday.
Scholz made the proposal last week during a closed-door meeting with other senior members of Chancellor Angela Merkel’s coalition government, two people familiar with the talks told Reuters on condition of anonymity.
A Finance Ministry spokesman declined to comment, while a government spokeswoman said a higher tobacco tax was currently not a priority for the government.
In their coalition deal sealed last year, Merkel’s conservative CDU/CSU bloc and Scholz’s left-leaning SPD agreed to refrain from both taking on new debt and increasing taxes.
“The tobacco tax is not mentioned in the coalition agreement,” the government spokeswoman said. But she added that coalition parties would discuss a tax increase if the need to talk about it should arise.
Scholz wants to increase the tobacco tax gradually over a period of five years starting from 2020. The move could bring additional tax revenues of up to 4 billion euros from 2020-24, according to a report by Der Spiegel magazine.
Germany has slashed its 2019 growth forecast and tax intake estimates, leaving the government with limited room for additional fiscal measures to counter a slowdown in Europe’s largest economy.
The bleak budget outlook means the federal government faces a shortfall of 10.5 billion euros until 2023, the finance ministry said earlier this month.
Germany’s tobacco tax revenue was around 14 billion euros last year.
Reporting by Michael Nienaber and Andreas Rinke, Editing by Catherine Evans