Clemens Fuest, president of the Ifo institute, dismissed the SPD finance minister Lars Klingbeil’s plan to cut taxes for middle‑ and lower‑income earners as virtually unfeasible.
He said that merely flattening the so‑called middle‑income “belt” would cost the state more than 30 billion euros a year, a figure he relayed to the Frankfurter Allgemeine Zeitung in its Wednesday edition. “Tax burdens are ultimately the result of spending. If you want to lighten the tax load, you must cut spending – that’s where the government ought to start” he warned. According to Fuest, the coalition currently shows no serious willingness to address its expenditures.
Fuest also expressed skepticism about raising the top tax rate, a measure the SPD has offered as a counter‑financing option. “Germany’s economic situation is already tight; investment is far too low. Would you want to make it even worse?” he asked. He believes that higher taxation of top earners would indirectly hurt middle‑class incomes. Referring to CDU General Secretary Linnemann’s proposal to apply the top rate only on incomes above 80,000 euros, Fuest called the expected relief “hardly assessable” and dismissed it as a form of “coffee‑grounds reading”. He explained that costs would vary dramatically depending on the structure of the rate schedule.
Looking ahead to a projected budget gap of roughly 130 billion euros between 2027 and 2029, Fuest expects a combination of caps on spending, tighter taxation and additional borrowing. He fears the government will divert more money from earmarked funds-an approach that has already faced heavy criticism-as the pressure mounts.
In the medium term, he sees a rise in the value‑added tax (VAT) as almost unavoidable. “Ultimately, the government might raise the VAT” he said, noting that a VAT increase is “less growth‑harmful” than an income‑tax hike because it affects investment less directly. He added that if the state wants more growth and tax relief, it must, at some point, reduce spending.
Fuest downplayed the federal government’s hope that stronger economic growth could relieve the fiscal situation. “We have no evidence of a boom beyond what is already priced in - I see nothing that will emerge” he said.
