German tax takings have jumped 14 per cent so far this year, a €29 billion rise on last year and a further sign that the country's economic recovery is gathering pace.

The Handelsblatt business newspaper quoted unnamed officials yesterday as saying that takings had risen 12.6 per cent in June alone. In May, the government predicted €10 billion in extra tax takings.

After an initial boost in corporate tax takings, the tax boom has spread across the board to income tax and even value-added tax, the paper reported, an indication that cautious German consumers are once again spending money.

Official tax figures will be released next week, but already the finance ministry is bracing itself for hand-out demands from other ministries.

Finance minister Peer Steinbrück has told cabinet colleagues that reducing the country's €1.5 trillion federal deficit has priority.

Much of the extra tax money has already been earmarked for costly new projects that have come on stream this year, such as the new parents' allowance which is expected to cost nearly €4 billion annually.

Meanwhile corporate tax will fall by nearly nine points to just under 30 per cent next year, at an annual cost of about €5 billion.

Mr Steinbrück hopes that a medium term spell of fiscal discipline will lead to a balanced budget in 2010, Germany's first since the 1970s.

The IWH economic institute in Halle suggested yesterday that rapidly increasing growth meant this goal could be reached by this year or next.

It predicts that Europe's largest economy will grow by 2.6 per cent this year and 2.5 per cent next year.

"Confidence among businesses is intact, the financial environment for investment decisions is still rather favourable," the IWH in said a statement.

"Capacity utilisation in industry continues to be exceptional and is stimulating the widening of the production base."