Germany plans borrowing to finance tax cuts

The German government plans to borrow an additional €4-5bn next year to help finance its tax cuts package, government sources said.

They said a further €2bn is to be generated through privatisation and €1bn through a reduction in government subsidies.

The government needs to find an extra €7.0 - 7.5bn to finance its plan to bring forward tax cuts to January 1 next year that were originally scheduled for 2005.

Chancellor Gerhard Schroeder and finance minister Hans Eichel are expected to hold a press conference between 1-2pm today to explain how the tax cuts will be financed.

The Sueddeutsche Zeitung newspaper, reported this morning that Germany would take on €4bn in additional debt to finance the tax cuts.

It cited finance ministry sources as saying that the new debt would bring the federal debt to €28bn in the 2004 budget.

Finance ministry spokesman Joerg Mueller refused to confirm the report.