Federal budget trends in the first quarter of 2017

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Revenue trends

Federal revenue totalled €81.6bn in the first quarter of 2017, an increase of 9.3% (+€6.99bn) compared with the same period last year. The total for the first quarter corresponds to a quarter of the budgeted revenues for the whole of 2017. Tax revenue, which accounts for the largest share of total revenue, totalled €76.9bn in the first quarter, up by 16.8% over the first quarter of 2016. Other revenue was down by €4.1bn on the year, but has reached 22% of the 2017 target and is therefore within the planned range. The difference compared with last year was largely the result of a €2.8bn fall in the Bundesbank’s profits.

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Expenditure trends

Federal expenditure in the first quarter of 2017 totalled €84.4bn, representing a quarter of budgeted expenditure for the whole of 2017. Expenditure in March 2017 was up by 1.1% (+€0.9bn) over the same period in 2016.

Federal spending is separated into consumption and investment expenditure. Consumption expenditure in the first quarter of 2017 was up by 1.5% over last year. Within this category, human resources spending rose by 4.3% and operating expenditure by 6.6%. Ongoing grants and subsidies to other areas also posted a clear increase, which was largely due to higher spending on pensions, on benefits such as unemployment benefit and parental allowance, and on social security. Almost 30% of the planned 2017 budget for this category has already been spent. The decline in interest expenditure, which fell by €1.3bn (-16.1%) on the year in the first quarter of 2017, significantly mitigated the increase in consumption expenditure. Investment expenditure declined by 4.3% (-€0.3bn) on the year, which was related to a reduction in federal financial assistance. In contrast, fixed asset investment was up by 32.1%.

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Fiscal balance

Expenditure in the first quarter of 2017 exceeded revenue by €2.8bn.

Revenue and expenditure are subject to strong fluctuations over the course of the fiscal year and thus have an uneven effect on cash funds in individual months. Net borrowing also tends to fluctuate considerably over the course of the year. This means that the fiscal balance at this point in the year and the corresponding net borrowing figures are not reliable indicators of the end-of-year figures for the fiscal balance and net borrowing.

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Trends in general government tax revenue

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Tax revenue in March 2017

Total tax revenue (excluding local authority taxes) posted another robust year-on-year gain in March 2017, up by 7.5%. The increase in revenue from joint taxes, which rose strongly once again (by 9.0% on the year), played a particularly important role in this respect. This trend was driven by sharp increases in revenue from non-assessed taxes on earnings, wages tax and value added tax. However, revenue from assessed income tax and corporation tax also posted strong increases in March, which is usually a high-revenue month for these taxes due to the prepayment schedule. Receipts from federal taxes were up by 2.8% on the year, while revenue from Länder taxes posted a moderate decline of 2.3%.

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EU own resources

Payments of own resources to the EU, including customs duties, fell by 28.0% in March 2017 compared with the same month last year. On a cumulative basis, there was a year-on-year decline of 74.9% in the first quarter of 2017, which was due to a) balances resulting from EU adjustments and amending budgets, and b) the implementation of the EU’s new Own Resources Decision. As a result, the monthly payments during the rest of the year will also be reduced. Overall, therefore, it is anticipated that Germany’s transfers of own resources to the EU will be lower this year than in 2016. Payments are subject to fluctuations over the course of the year, depending on the EU’s financing needs at any given time.

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Overview of the January–March 2017 period

In the first quarter of 2017, tax receipts increased by 6.8% overall on the year. This upward trend was apparent in receipts from joint taxes (+7.6%), taxes accruing to the Federation (+3.6%), and taxes accruing to the Länder (+2.8%).

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Distribution among the Federation, Länder and local authorities

The Federation’s tax receipts (after accounting for supplementary federal grants to the Länder) rose by 10.2% on the year in March 2017. This large increase was the result of lower payments of own resources to the EU and significant growth in the Federation’s share of revenue from joint taxes (+8.3%). The Länder’s tax revenue posted an increase of 7.8%, although the rise in the Länder’s share of joint taxes was offset somewhat by a slight decrease in revenue from taxes accruing to the Länder. Local authorities’ shares of receipts from joint taxes were up overall by 10.9% compared with March 2016.

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Joint taxes

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Wages tax

The steady upward trend in wages tax revenue in recent months continued, buoyed by the ongoing positive employment situation and rising wages. Gross revenue from this tax increased by 4.9% on the year in March 2017. Child benefit payments, which are financed from wages tax receipts and must be subtracted from this figure, increased by 3.2% over the same month last year. On balance, cash receipts from wages tax were up by 5.3% in year-on-year terms in March. In the first quarter of 2017, cash receipts from wages tax recorded a sizeable year-on-year gain of 6.4%.

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Corporation tax

Gross revenue from corporation tax rose sharply by 10.5% on the year in March, a significant month for tax prepayments. This trend was influenced by rising prepayments by businesses for the current year as well as back payments resulting from assessments. Although revenue from this tax only posted cumulative growth of 0.9% in the first quarter of 2017, this was due to a baseline effect that impacted on the January result. In contrast, the current positive trend indicates that corporation tax revenue will continue to grow over the course of 2017. After deducting investment allowance payments, which are continuing to decline in volume terms, cash receipts from corporate tax recorded a year-on-year increase of 10.6% in March 2017. However, significant corporation tax refunds are still expected for 2017 due to high court rulings which have not yet had an impact on revenue (Federal Fiscal Court rulings on the STEKO case and section 40a of the Capital Investment Companies Act).

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Assessed income tax

Gross revenue from assessed income tax was up by 13.2% over March 2016. The result for March, a month which is marked by high receipts due to prepayments, confirmed the revenue trend observed in previous months, which was significantly higher than the overall profit trend seen in the national accounts. Cash receipts from assessed income tax were up by 14.2% on the year in March 2017, after subtracting employee refunds, investment allowance payments and owner-occupied homes premiums. On a cumulative basis, revenue from this tax increased by 16.7% in year-on-year terms in the first quarter of 2017.

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Non-assessed taxes on earnings

March 2017 saw a year-on-year increase of 21.1% in gross receipts from non-assessed taxes on earnings. Refunds by the Federal Central Tax Office, which are financed from this revenue, dropped sharply by 76.7%. On balance, cash receipts from non-assessed taxes on earnings rose by 50.0% on the year in March. It is possible that this outcome was affected by a shift in the timing of dividend payments compared with last year. In the first quarter of 2017, cumulative cash receipts from non-assessed taxes on earnings were up by 20.6% compared with the first quarter of 2016.

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Final withholding tax on interest and capital gains

The trend in receipts from final withholding tax on interest and capital gains continues to be positive, with year-on-year growth of 5.4% in March 2017. The trend in recent months continues to suggest that revenue from this tax will stabilise at a lower level. The increase in March may have been the result of growth in revenue from the taxation of capital gains, given that interest rates are still very low. No reliable information can be provided on this question, however, as statistical data on the breakdown of revenue from interest and from capital gains is not available. In cumulative terms, revenue from final withholding tax on interest and capital gains rose by 15.4% on the year in the first quarter of 2017.

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Value added taxes

VAT revenue once again posted tangible growth in March 2017 (+4.1%) following considerable increases in previous months. However, it should be noted that VAT revenue can display high volatility over the course of the year. Receipts from domestic VAT grew by 3.1% in year-on-year terms, while the yield from import VAT climbed by 7.0%. On a cumulative basis, revenue from value added taxes rose strongly, by 5.7% on the year, in the first quarter of 2017.

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Taxes accruing to the Federation

In March 2017, revenue from taxes accruing solely to the Federation posted a 2.8% increase overall compared with the same period of last year. The individual taxes showed very different trends, however. The taxes that posted revenue increases included energy duty (+5.1%), electricity duty (+24.6%), motor vehicle tax (+6.0%) and aviation tax (+8.6%). Receipts from solidarity surcharge also climbed by 11.4% on the year, benefiting from growth in revenue from income and corporation tax (which constitutes its tax base). In contrast, receipts from tobacco duty and insurance tax were down on the year, by 16.7% and 7.6% respectively. Trends in revenue from other taxes had only a minor impact on the overall results for federal taxes. In cumulative terms, receipts from federal taxes rose by 3.6% on the year in the first quarter of 2017.

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Taxes accruing to the Länder

Revenue from taxes accruing solely to the Länder fell by 2.3% in year-on-year terms in March 2017, due to a 16.6% decline in receipts from inheritance tax. Year-on-year revenue gains were also recorded for real property transfer tax (+6.1%) and fire protection tax (+5.7%). Receipts from betting and lottery tax fell slightly compared with the same period last year (-1.0%), while the yield from beer duty rose by 9.1%. In cumulative terms, receipts from Länder taxes rose by 2.8% on the year in the first quarter of 2017.

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Credit market funds

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Guarantees

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Key dates on the fiscal policy agenda

Exact statistics and explanations for 1 to 5 above can be found in the German version of the Federal Ministry of Finance’s monthly report.