Christian Kraemer and Michael Nienaber

BERLIN (Reuters), – Germany’s three main parties are able to count on tax revenue to finance some of the election promises, such as increased public investment in climate protection or digitalisation. Official estimates were made on Thursday.

Outgoing Finance Minister and Chancellor-in-waiting Olaf Scholz told reporters in Berlin he was more confident now that his centre-left Social Democrats (SPD), the ecologist Greens and the business-friendly Free Democrats (FDP) could bridge remaining differences in negotiations and seal a coalition agreement before the end of this month.

It’s not a good idea to count chickens after they hatch. Scholz stated that it was looking great so far.

It would be possible for the parties to adhere to their mutually agreed timeline, in which Scholz should become the successor of Angela Merkel’s Chancellor in parliament.

Scholz stated that the better-than-expected estimates of tax revenues have given Scholz “a lot more leeway in the budget” which has since even grown.

As a result of the overall inflation effect and the recovery from pandemic, the federal government now can expect to see tax revenue for 2021-2025 at 71.7 billion euros more than previously projected.

All levels of state, as well as state government and municipalities, expect tax revenues to rise by nearly 180 million euros between 2021-2025, compared with May’s projections.

Commerzbank economist Ralph Solveen stated that while this gives SPD, Greens, and FDP some financial flexibility in coalition talks, it is far from enough to solve the fiscal policy conflicts between them.”

Scholz didn’t give any details about the recent secretive coalition talks that were held in unrevealed locations throughout the German capital over the past weeks.

Scholz stressed the general pledge by all three parties to raise public spending to shift towards a more carbon-neutral, digitalised economy. This would help strengthen recovery from the pandemic.

Scholz stated that he wanted to support this trend by continuing record investments in digitalisation, scientific research, and climate protection.

Scholz stated that despite the tax revenue windfall, the next government would have to invoke an emergency clause within the Constitutionally Enshrined Debt Brake for the third year consecutively in 2022 in order to permit net debt to be increased by some 100 billion Euros to fight the pandemic, as the previous government suggested.

Merkel and Scholz, after years of fiscal discipline and balanced budgets, have now financed COVID-19’s emergency measures using record-breaking new borrowing. This year they borrowed a staggering 240 billion euro and 130 billion euros respectively.

Scholz, along with other senior party representatives, will meet Monday to review the progress in the coalition talks so far and discuss possible compromises in still-disputed areas.