Europe Economy

Germany Posts First Half Budget Surplus


Germany posted a public sector budget surplus in the first six months of 2007, the first time it has achieved this in the January-June period in nearly two decades, the Federal Statistics Office said on Thursday.

The surplus of 1.2 billion euros ($1.63 billion) equated to around 0.1% of German gross domestic product. It was fuelled by surging tax revenues following a three percentage point rise in value added tax (VAT) on January 1.

"Things are looking pretty positive at present," said Deutsche Bank economist Stefan Bielmeier. "I don't think this will lead to a surplus for the whole year, but we believe that Germany's public sector budget will be balanced next year."

The Federal Republic's finances had not been in the black during the first half since 1989, the year before German reunification, an Office spokesman said. Its sole second half surplus since then came in 2000, when the government raised billions by auctioning UMTS mobile phone licences.

Germany recorded a deficit of 2.0% of GDP in the first half of 2006, the Office said.

No Tax Cuts

The Finance Ministry has forecast a 2007 budget deficit of 0.5% this year, and a ministry spokesman said on Thursday there had been no change to this prediction.

"Even if things are progressing nicely, you can't just extrapolate from this for the whole year," he said, adding revenues flows were not spread evenly throughout the year.

Until last year, Germany had breached the European Union's deficit limit of 3% of GDP for four years running.

The Statistics Office said the methodology applied to calculating the surplus was not the same as the one used by the EU to work out member states' budgetary situations.

Finance Minister Peer Steinbrueck has said Germany's public sector budgets will be balanced by 2010. Steinbrueck told Thursday's edition of business daily Handelsblatt there could be no question of cutting taxes during the current parliament despite budgetary improvements.

The next federal election is due in late 2009.

"Whoever demands tax cuts at the moment is unabashedly continuing the policies which have hitherto led to a debt mountain of 1.5 trillion euros in Germany," Steinbrueck said.

Some conservatives in the ruling coaliton, notably Economy Minister Michael Glos, have pushed for tax cuts as the country enjoys its strongest growth since the turn of the millenium.