2000 to be bumper year for German public purse

Record receipts from the sale of the third generation mobile phone licence (UMTS) frequencies, strong tax income and privatisation cash look set to make 2000 a bumper year for Germany's public purse, but there is pressure on the government to clarify what it will do with the cash bonanza.

The Finance Ministry rejected speculation that last week's 100 billion deutschmark (€51 billion) UMTS windfall would make the government alter its privatisation schedule to allow it to book proceeds from the sale of state assets in 2001 when tax cuts start to bite. "The privatisation schedule will stay as it is as the revenues have already been included in the budget," a Finance Ministry spokeswoman said.

The Social Democrat-led government recently passed a package of tax reforms which allows for DM50 billion in tax cuts.

As the effect of the tax reform on revenues next year remains a matter for conjecture, there had been speculation the government might delay some privatisations to help boost the budget in 2001, a year before elections due in 2002.

The ever-prudent Finance Minister, Mr Hans Eichel, insists he will use all of the UMTS (Universal Mobile Telecommunications System) cash to reduce debt.

However, beyond earmarking €33 billion of the proceeds to pay off floating rate notes (FRNs) issued a year after reunification in 1990, there has been no specific information about what will be done with the cash.

"The debt repayment concept still has to be decided on," a Finance Ministry spokeswoman said yesterday. Mr Adolf Rosenstock, an economist at Nomura International, called for more transparency about what the German government intended to do with the UMTS proceeds.

"Markets know how to make judgments and they will reward clarity. They would like to see more openness," he said.

"The government wants to do the right thing, to keep the liquidity in the benchmark issues up. Six months notice to holders is not that long. If they want to redeem more debt then they should give notice," Mr Rosenstock said.

Some analysts said the UMTS auction would contribute to Germany having its first budget surplus this year since 1970.

"A strict fiscal policy means spending will only slightly exceed planned levels, if at all. This should give a budget surplus of DM65 billion compared to a budgeted deficit of nearly DM50 billion," WestLB said in a research document.

The German government said yesterday it expected tax revenues for 2000 to be above an official estimate from earlier this year but it was unlikely the overshoot would be as great as the DM18.4 billion forecast by a leading tax expert.

The government has budgeted privatisation revenues for this year at DM17.1 billion. So far this year, privatisations have included the sale of Deutsche Telekom shares.

On November 6th the government will sell between 25 and 33 per cent of its shares in the German post office Deutsche Post while the government also plans to sell off 112,000 railway workers' cottages worth billions of marks.