Federal budget trends up to and including April 2017

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Revenue trends

In the first four months of 2017, federal revenue was up on the year by €6.8bn, or 6.8%. Tax revenue, which accounts for the largest share of total revenue, amounted to €99.8bn during this period (a year-on-year gain of 12.6%). Other revenue was down by €4.4bn on the year, mainly due to a €2.8bn decline in Bundesbank profits.

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Expenditure trends

Federal expenditure totalled €109.7bn in the first four months of 2017, up on the year by €3.0bn, or 2.8%.

Federal spending is separated into consumption and investment expenditure. Consumption expenditure was up on the year by €3.0bn (+3.1%) during this period, mainly due to increases in human resources spending and operating expenses, which rose by 4.6% and 4.9%, respectively. Ongoing grants to other areas – in particular, pensions, benefits and social security funds – were also expanded significantly. For example, federal grants for basic income support for jobseekers (“unemployment benefit II”) and parental benefit increased by 7.0% and 6.3%, respectively. Interest payments up to and including April 2017 amounted to €8.1bn, up slightly on the year by 0.5%. Investment spending was down by €80m (or 1%) during this period. Within this category, federal financial assistance to promote investment by the Länder and local authorities declined in comparison with the same period a year ago, while fixed asset investment climbed markedly.

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Fiscal balance

In the first four months of 2017, expenditure exceeded revenue by €2.9bn.

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 April 2017

Total tax revenue (excluding local authority taxes) recorded another robust year-on-year gain in April 2017, up by 5.8%. This outcome was driven by a sharp increase in receipts from joint taxes, which climbed by 9.0% on the year. The largest contribution came from corporation tax, which posted a revenue gain of €0.9bn. The two taxes that generate the most revenue – wages tax and value added taxes – also played a key role in reinforcing the upward trend in revenue from joint taxes. Revenue from both assessed income tax as well as withholding tax on interest and capital gains grew at a very high rate, but their contribution to the total increase in revenue from joint taxes was less significant due to their relatively low baseline levels in April. Receipts from federal taxes were down by 4.9% on the year in April, with the yield from both energy duty and tobacco duty registering year-on-year declines. Revenue from Länder taxes was also down in April (by 8.9%), after having declined already in March.

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EU own resources

Payments of own resources to the EU, including customs duties, rose by 52.7% in April 2017 compared with the same month last year. On a cumulative basis, however, own resources payments to the EU fell by 55.9% on the year in the first four months of 2017, due to (a) balances resulting from EU adjustments and amending budgets and (b) the implementation of the EU’s new Own Resources Decision. Overall, 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–April 2017 period

Total tax receipts increased by 6.5% in the first four months of 2017. Revenue from joint taxes grew by 7.9%, while the yield from taxes accruing solely to the Federation was up by 1.3%. Receipts from taxes accruing solely to the Länder remained roughly constant on the year.

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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) were up only slightly in April 2017, by 0.3% on the year. The Federation’s share of revenue from joint taxes increased, but this was nearly cancelled out by a decline in receipts from purely federal taxes and the sharp rise in transfers of own resources to the EU. Länder tax revenue was up by 7.3% in April, as an increase in the share of joint tax revenue accruing to the Länder was offset only slightly by a decline in receipts from purely Länder taxes. Local authority revenue from joint taxes was up by 10.5% on the year overall in April 2017.

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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 sustained positive employment trends and rising wages. Gross wages tax revenue climbed by 4.0% on the year in April 2017. Child benefit payments – which are financed from wages tax receipts and subtracted from the gross figure – remained roughly constant (up 0.1% compared with April 2016). This meant that, on balance, cash receipts from wages tax were up by 4.8% on the year in April. In cumulative terms, cash receipts from wages tax were up markedly by 6.0% on the year in the first four months of 2017.

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Corporation tax

Gross revenue from corporation tax rose sharply on the year in April, which tends to be a low-revenue month for this tax, when receipts are driven largely by tax assessments. Assessments from previous years led to a surge in retroactive prepayments, and back payments increased as well. However, the most important factor contributing to revenue growth in April was a roughly 40% decline in refunds. After subtraction of investment allowance payments, which continue to decline in terms of volume, cash receipts from corporation tax posted a year-on-year gain of €0.9bn in April 2017. A high volume of corporation tax refunds is expected over the course of 2017 as a result of high court rulings that have not yet had an impact on revenue (Federal Fiscal Court rulings on the STEKO case and section 40 of the Capital Investment Companies Act).

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Assessed income tax

Gross revenue from assessed income tax was up only slightly over April 2016. Refunds to employees assessed for income tax declined significantly on the year in April 2017. However, part of this decline was the result of a change in how one Land records statistics on employee refunds. As was the case with corporation tax, assessments of other types of income led to an increase in retroactive prepayments. The balance between back payments and refunds (excluding employee refunds) also boosted receipts. As a result, cash receipts from assessed income tax were up by 46.7% on the year in April 2017. In cumulative terms, cash receipts from assessed income tax were up by 18.6% on the year in the first four months of 2017.

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Non-assessed taxes on earnings

April 2017 saw a year-on-year increase of 14.3% in gross receipts from non-assessed taxes on earnings. Refunds by the Federal Central Tax Office, which are financed from this revenue, were up sharply by approximately €150m. This meant that, on balance, cash receipts from non-assessed taxes on earnings posted only moderate growth in April, up by 2.3% on the year. In the first four months of 2017, cumulative cash receipts from non-assessed taxes on earnings were up by 15.2% compared with the same period in 2016.

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Final withholding tax on interest and capital gains

Receipts from final withholding tax on interest and capital gains continue to trend upwards, posting a significant year-on-year gain of 50.0% in April 2017. The increase in April 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 are not available. Taken cumulatively, revenue from final withholding tax on interest and capital gains was up by 21.2% on the year in the first four months of 2017.

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Value added taxes

VAT revenue once again posted substantial growth in April 2017 (+4.9%), following significant increases in previous months. However, it should be noted that VAT revenue displays a high level of volatility over the course of the year. In April, receipts from domestic VAT grew by 0.6% in year-on-year terms, while the yield from import VAT climbed by 17.3%. In cumulative terms, revenue from value added taxes was up sharply by 5.5% on the year in the first four months of 2017.

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Taxes accruing to the Federation

Revenue from taxes accruing solely to the Federation fell by 4.9% on the year in April 2017. Individual taxes showed very different trends, however. Receipts from some taxes declined, including tobacco duty ( 23.8%), energy duty ( 3.2%), motor vehicle tax ( 7.4%) and spirits duty ( 1.4%). In contrast, other taxes posted revenue growth, including solidarity surcharge (+9.8%), insurance tax (+4.4%) and aviation tax (+1.5%). Changes in revenue from other taxes had only a minor impact on the overall results for federal taxes. In cumulative terms, receipts from federal taxes were up by 1.3% on the year in the first four months of 2017.

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Taxes accruing to the Länder

Revenue from taxes accruing solely to the Länder fell by 8.9% on the year in April 2017. This decline was driven by lower year-on-year receipts for inheritance tax ( 19.7%), real property transfer tax ( 5.0%), beer duty ( 3.7%) and fire protection tax ( 7.6%). In contrast, revenue from betting and lottery tax posted strong year-on-year growth of 8.5%. Taken cumulatively, receipts from Länder taxes remained constant on the year in the first four months of 2017.

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Results of the May 2017 tax revenue estimate

The Working Party on Tax Revenue Estimates convened on 9-11 May 2017 for its 151st meeting, which took place in the town of Bad Muskau. In its assessment of tax revenue trends in the years from 2017 to 2021, the group projected that tax revenue will grow by 3.8% overall in 2017. Tax revenue is expected to keep posting strong growth throughout the remaining projection period up to 2021. The Working Party’s findings reflect the ongoing positive performance of the German economy, as demonstrated by high employment levels, robust domestic demand, higher wages and rising business profits. Positive revenue trends are being driven primarily by receipts from joint taxes. Receipts from the two most important sources of tax revenue – wages tax and value added taxes – are forecast to post strong growth during the projection period. The same is true for receipts from assessed income tax and corporation tax, which are both profit-based taxes. The Working Party also projects that the largest source of revenue for local authorities – trade tax – will continue to post dynamic growth. In contrast, revenue from Länder taxes, federal taxes and other local authority taxes is expected to grow at a below-average rate. Details of the Working Party’s findings will be published in the Finance Ministry’s June 2017 monthly report.

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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.