The Federation, Länder and local authorities can continue to expect higher tax revenues in the coming years. According to current tax estimates, tax revenues will rise from €796.4bn in 2019 to around €935.0bn in 2024. The trend will be somewhat better for the Länder and local authorities than for the Federation, however. Overall, the Working Party on Tax Revenue Estimates has corrected its revenue expectations slightly downwards. The 156th meeting of the Working Party on Tax Revenue Estimates took place in Stuttgart from 28 to 30 October 2019 at the invitation of the finance minister of the Land of Baden-Württemberg, and the results were announced by German Finance Minister Olaf Scholz on 30 October 2019.
"We are really doing something and it’s paying off. The Federation, Länder and local authorities can expect higher tax revenues also in the coming years. By making record investments and boosting incomes, the federal government is making an important contribution to the booming domestic economy, record employment, rising wages and stable government revenues. Economic growth would be significantly lower without the measures we have taken. My priorities therefore continue to be massive investment in the future, social cohesion in our country and effective measures to counter climate change.”Olaf Scholz, Finance Minister
The results reflect several developments. Although the overall economic trend is less dynamic due to a slowdown in global economic growth, the domestic economic trend in Germany remains favourable. Private households are benefiting from a very positive labour market situation and rising incomes. In recent years, fiscal policy has provided strong impetus for a sustainable and continued increase in disposable incomes. The domestic economy is the mainstay of growth, together with a labour market that remains robust. With the measures it has adopted, the federal government is providing additional fiscal opolicy impetus to stabilise the economy. Fiscal policy will be clearly expansionary in 2020.
When assessing the tax estimates, it is important to note that the €4.0bn increase in the Federation’s tax revenues for 2019, compared with the May 2019 tax estimate, are essentially determined by one-off effects (transfers to the EU were lower, as cautious estimates in connection with a possible disorderly withdrawal of the United Kingdom from the EU in 2019 are no longer relevant).
According to the results announced today, tax revenues in the coming year will be €0.2bn lower compared with the figures in the draft federal budget for 2020 of 26 June 2019 and the supplementary budget of 2 October 2019 (Energy and Climate Fund).
Basis for estimating tax revenue
The tax estimate was based on the macroeconomic benchmark figures of the federal government’s autumn 2019 projection. According to this projection, the government expects gross domestic product to grow by 0.5% in real terms this year and by 1.0% in 2020. The nominal gross domestic product is now projected to increase by 2.8% in 2019, 2.9% in 2020, 3.1% in 2021 and 2.8% each year from 2022 to 2024.
Gross wages and salaries are one of the relevant macroeconomic assessment bases for the tax estimate. The figures for gross wages and salaries were adjusted as follows in the context of the current autumn 2019 projection compared with the spring 2019 projection. Gross wages and salaries are now expected to increase by 4.1% in 2019. This is 0.3 percentage points less than in the spring 2019 projection. For 2020, the projection was lowered by 0.7 percentage points to 3.2%. For 2021, gross wages and salaries are expected to rise by 3.2%, an increase of 0.4 percentage points over the previous projection of 2.8%. For the 2022–2024 period, gross wages and salaries are predicted to increase by 2.8% per year, the same forecast as in the spring 2019 projection.
Business and property income is the key parameter for estimating revenue from taxes based on profits. For 2019, the estimate for the trend in business and property income has been increased by 0.9 percentage points, and now only a year-on-year decrease of 0.6% is expected. An increase of 1.6% is expected in 2020; however, this is 1.3 percentage points lower than assumed in the spring 2019 projection. In 2021, business and property income is expected to grow by 3.1%, an increase of 0.2 percentage points over the previous projection. An annual increase of 2.8% is forecast for the 2022–2024 period.
The tax estimate is based on the applicable tax laws. Compared with the previous estimate of May 2019, the following fiscal effects from laws and other regulations have been taken into account:
Act on the Abolition of Road Construction Contributions of 24 June 2019; Article 1 – Amendment to the Act on the Determination of the Tax Rate for Real Property Transfer Tax (Laws and Ordinances Journal for Mecklenburg-Western Pomerania 2019, no. 11, p. 190)
- Act on Tax Incentives for the Construction of New Rental Housing of 4 August 2019 (Federal Law Gazette 2019 I, no. 29, p. 1122)
- Announcement of the average additional contribution pursuant to section 242a (2) of the Fifth Book of the Social Code for 2020, dated 22 October 2019 (Federal Gazette, official section, 28 October 2019, B3)
Total tax revenues in 2019 will be €2.6bn higher than the May 2019 tax estimate predicted. This will result in additional revenues of €4.0bn for the Federation and €0.9bn for the Länder. The revenue expectations for the local authorities remain roughly unchanged.
In the 2020–2024 period, the forecast for overall tax revenues is slightly below the May 2019 estimate. The Working Party on Tax Revenue Estimates has adjusted its forecast for 2019 upwards by €2.6bn (Federation: +€4.0bn), for 2020 by €1.7bn downwards (Federation: -€0.2bn), for 2021 by €1.8bn downwards (Federation: -€1.9bn), for 2022 by €2.7bn downwards (Federation: -€2.0bn) and for 2023 by €3.5bn downwards (Federation: +€2.4bn).
The results of the tax estimate for the 2019–2024 period for the Federation, Länder, local authorities and the EU are summarised in Annex 1 (in German). To allow for a comparison with the last tax estimate of May 2019, the deviations from these estimates for the years until 2023 are shown in detail in Annex 2 (in German).