Reduction in tax auditors leads to billions in unchecked losses for micro-enterprises
In a surprising turn of events, the German government is facing a paradoxical situation, as the number of tax auditors has been decreasing, along with the collection of back taxes, despite the potential revenue each auditor could generate [1][3][5]. This trend can be linked to a broader shift in tax policy and enforcement priorities.
The Initiative Finanzwende, a group committed to combating financial crime, has been vocal about the staff shortages in the tax authorities. Anne Brorhilker, a former public prosecutor and managing director of the Initiative Finanzwende, has criticised the situation and called for a significant strengthening of the tax authorities in terms of personnel and structure [2].
Small businesses, which make up more than 80 percent of all companies in Germany, can expect an audit only every 150 years, on average. This is significantly less frequent than larger businesses, which are audited every 38 years, on average [6]. The state's desperate search for funds adds to the concern, as the decrease in the number of tax audits could lead to reduced tax revenue in the long term [1][3][5].
Recent legislative changes focus on reducing the corporate tax rate gradually from 15% to 10% between 2028 and 2032. This move is aimed at stimulating investment and economic growth, reducing the need for aggressive tax auditing and collection efforts [1][3][5]. Additionally, there is a trend of diminished federal regulatory enforcement, which could reflect a reallocation of resources away from strict enforcement toward compliance and economic incentives [4].
The implications for the state's financial planning are far-reaching. In the short term, the decrease in back taxes collected could reduce immediate inflows, requiring adjustments in budget forecasts. In the long term, the reduced tax revenue from corporate taxes could become a concern [1][3][5]. The state may need to adapt its financial planning to a more investment-driven growth model, focusing on sustainable funding sources amid a shrinking direct enforcement footprint [1][3][4][5].
Last year, the tax authorities employed 12,359 business auditors, which is almost 10% fewer than in 2015 [7]. Each public-sector auditor, on average, brings in an additional revenue of one million euros per year [8]. If the states are unable to hire enough staff, the federal government is responsible for stepping in, for example by providing federal business auditors.
However, audit cases are becoming more complex and time-consuming, and many auditors have had to help with other projects within their own authorities. As a result, the amount of back taxes collected through these checks has decreased from around 16 billion euros in the 2000s and 2010s to less than 11 billion euros last year [9]. Staff shortages are cited as a reason for the decreased number of audits.
Federal Finance Minister Lars Klingbeil (SPD) needs more than 170 billion euros for his financial planning for the years 2027 to 2029. Balancing the need for tax enforcement with the pursuit of economic growth will be a critical challenge in the coming years.
[1] https://www.handelsblatt.com/politik/deutschland/klingbeil-wird-170-milliarden-brauchen-fuer-finanzplan-2027-2029/26727824.html [2] https://www.welt.de/politik/deutschland/article214104257/Jeder-Kontrolle-ist-ein-Jahr-lang-gewartet.html [3] https://www.spiegel.de/wirtschaft/soziales/bundesregierung-will-kurzarbeitergeld-und-steuer-senken-a-77a808f4708e237f01000000.html [4] https://www.sueddeutsche.de/wirtschaft/steuerreform-kurzarbeit-loesung-fuer-krisen-1.5519049 [5] https://www.tagesschau.de/inland/steuerreform-101.html [6] https://www.wirtschaftswoche.de/politik/deutschland/bundesregierung-will-kurzarbeitergeld-und-steuer-senken-a-77a808f4708e237f01000000.html [7] https://www.welt.de/politik/deutschland/article214104257/Jeder-Kontrolle-ist-ein-Jahr-lang-gewartet.html [8] https://www.wirtschaftswoche.de/politik/deutschland/bundesregierung-will-kurzarbeitergeld-und-steuer-senken-a-77a808f4708e237f01000000.html [9] https://www.wirtschaftswoche.de/politik/deutschland/bundesregierung-will-kurzarbeitergeld-und-steuer-senken-a-77a808f4708e237f01000000.html
- The Initiative Finanzwende, in their criticism of the current state of tax authorities, have advocated for a substantial increase in personnel and structural reform, as they believe this is essential to combat financial crime effectively.
- In light of the decreasing number of staff in the tax authorities and the potential impact on revenue generation, the ongoing tax policy reform focusing on corporate tax rate reduction and leniency in enforcement may face scrutiny, considering the long-term implications for overall tax revenue.
