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Strengthen revenue base – preserve government’s ability to act

Maßnahmen zur Stärkung der Einnahmenbasis

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15.04.2025 Special report

The government’s budget situation is tense. In addition to spending cuts, the federal government needs to use the leeway in terms of revenue generation. To consolidate the budget, the government needs to take measures to strengthen the revenue base.

Structural deficits, shortcomings in tax enforcement and lacking reforms weaken the government’s revenue base. In light of the growing debt mountain, however, measures to consolidate the federal budget have become more urgent than ever. Already today, the interest charges are high. Because of the new opportunities to get into debt, the interest charges will continue to grow.

Sound public finances require to strengthen the revenue base. This can only be achieved by taking consistent actions in terms of tax reliefs and tax fraud and ensuring a modern and efficient tax administration.

To preserve the government’s ability to act, we need sound and sustainable public finances – also and especially in the interest of future generations.

Quelle: Kay Scheller, President of the Bundesrechnungshof

Kay Scheller, Präsident des Bundesrechnungshofes.

The Bundesrechnungshof makes 22 recommendations based on its audit findings. A lot of money is involved. The tax reliefs alone have a revenue potential of €30 billion annually for the federal government and the federal states. Other important factors are additional tax receipts through a more effective fight against tax fraud and improved tax enforcement.

Reform tax reliefs

Tax reliefs need to be scrutinised regularly. If they do not have the intended effect, they should be adjusted or removed. One example is the tax relief for craftspeople services. They once have been implemented to encourage growth and employment in the craft trades – however, this effect is hardly visible. The tax relief more and more places a burden on the public budgets: €2.1 billion in 2023. However, the relief for individuals decreases: currently, less than €100 per year on average.

Provide the right tax incentives

Granting tax incentives should be limited to key government areas. The government also has to assess whether granting incentives is required and reasonable. Windfall gains should be avoided and multiple funding should be excluded.

Combat tax evasion

Tax evasion places a burden on the public budgets and disadvantages those who pay their taxes honestly. To ensure tax receipts, the effectiveness of the tax authorities should be increased considerably, e.g. by increasing efforts to combat money laundering.

Digitise the tax administration system

The digital transformation is of vital importance. An efficient tax administration requires modern IT systems. This also includes the uniform software used by all tax authorities throughout Germany – which is long overdue.

Strengthen tax enforcement

Weaknesses in the taxation reduce the revenue significantly. Tax enforcement also needs to keep up with new developments such as online platforms or crypto assets.

Enhance cooperation

The tax authorities of the federal and state governments should network with other relevant entities to be able to share data and join forces. The authorities require reporting systems to comprehensively assess data.

Please read our special report to get more information on our recommendations (only in German):

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Please note: the report is only available in German.

Maßnahmen zur Stärkung der Einnahmenbasis PDF, 6 MB Download