Federal budget trends up to and including August 2018

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Revenue

Federal revenue for the January–August 2018 period totalled €221.4bn, a rise of 7.1% (€14.6bn) over the same period last year. Tax revenue (including EU own resources) increased by 6.0% (€11.6bn). This can partly be attributed to a baseline effect: In the same period of 2017, nuclear fuel duty totalling €7.3bn, including interest, was repaid to energy supply companies, following the Federal Constitutional Court’s ruling of 13 April 2017. In addition, receipts from income tax and corporation tax were €5.5bn higher than in the same period of 2017.

Other revenue posted a year-on-year gain of 21.3% (€3.1bn) in the January–August 2018 period. This was mainly due to an increase in allocations from the Bundesbank’s profits, with allocations totalling €1.9bn, up by €1.5bn over the same period last year. Additionally, allocations from the Institute for Federal Real Estate were up by €0.5bn on the year.

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Expenditure

Cumulative federal expenditure for the period from January to August 2018 totalled €222.2bn, an increase of 1.3% (€2.9bn) on the year. Federal spending is separated into consumption and investment expenditure. In the January–August 2018 period, consumption spending was 1.8% higher than in the same period of 2017. This was primarily a result of increases in military procurement spending (up by 8.9%) and ongoing grants to public administrations (up by 21.9%). In the latter category, the Federation’s allocation of €2.1bn to the Energy and Climate Fund in August had the biggest impact on results. In addition, this category also includes federal grants to reimburse the Länder for social spending on basic income support for older people and for people with reduced earning capacity. This totalled roughly €900m in the fourth quarter of 2017, but the reimbursements were not paid until 2018. There was no such spending in the first quarter of 2017. Grants for other areas saw a below-average year-on-year rise in the January–August 2018 period, tempering the increase in consumption expenditure. More specifically, there was a significant rise of 3.0% in social security spending during this period, accompanied by declines in grants for pensions and benefits (such as basic income support for jobseekers, which was down by 3.6%) and grants to companies. Interest expenditure fell by 6.5% on the year, also slowing the increase in consumption spending. Investment spending totalled €17.8bn, which represents 45% of the target level for 2018. This figure is slightly skewed by the fact that the budgeted amount includes a €2.4bn allocation to a special digital infrastructure fund. However, the fund is currently still going through the parliamentary procedure, meaning that there have not yet been any actual outflows. Investment spending was down by 4.2% on the year in the January–August 2018 period. This is mainly due to the allocations to increase the equity of Deutsche Bahn AG by €1bn that occurred in August 2017. Fixed asset investment was up significantly, by 3.2% on the year, boosting investment spending.

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Fiscal balance

The federal budget recorded a deficit of €0.8bn for the period from January to August 2018.

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 August 2018

Total tax revenue (excluding local authority taxes) was up by 4.1% in August 2018 over the same month last year. Revenue from joint taxes climbed by 1.9%, with receipts from value added taxes and wages tax posting particularly high growth. Receipts from non-assessed taxes on earnings fell sharply on the year, partially offsetting the strong growth in revenue from this tax type in recent months. Revenue from taxes accruing solely to the Federation was up by 14.7% on the year. Here, the 2017 baseline figure was reduced by around €1.0bn due to nuclear fuel duty refunds. If the impact of nuclear fuel duty is factored out, the increase in federal tax revenue would only have totalled around 1.8%. Receipts from taxes accruing to the Länder were up by 2.5% on the year.

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EU own resources

Transfers of own resources to the EU, including customs duties, totalled around €2.5bn in August 2018, representing an increase of 77.6% over August 2017. Transfers to the EU are based on the planned financial framework for 2018, with fluctuations over the course of the year depending on the EU’s financing needs at any given time.

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Cumulative overview of the January–August 2018 period

Total tax receipts increased by 6.4% on the year in the first eight months of 2018. Broken down by category, revenue from joint taxes was up by 5.1% on the year, receipts from federal taxes increased by 14.4%, and the yield from Länder taxes rose by 6.7%.

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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 by 1.4% on the year in August 2018. Länder tax receipts recorded a year-on-year gain of 1.4%. There was a marked increase in transfers of EU own resources from the federal budget. This was balanced out by an improvement in the trend in revenue from nuclear fuel duty, however. Although no more income or repayments were recorded for this tax in August 2018, a refund of around €1bn was made in August 2017. The local authorities’ take from joint taxes was up by 9.8% on the year.

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Joint taxes

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Wages tax

Wages tax receipts again recorded strong growth in August 2018, with gross revenue from this tax increasing by 3.9% on the year. This reflected continuing employment growth and rising incomes in Germany. Child benefit payments – which are financed from receipts from wages tax – fell by 0.7% on the year in August 2018. One Land has been experiencing problems with the statistical reporting of child benefit in recent months, which continues to distort this figure. However, this effect had no impact on cash receipts. On balance, cash receipts from wages tax increased by 4.3% in year-on-year terms in August 2018. In cumulative terms, cash receipts from wages tax were up by 6.3% on the year in the January-August 2018 period.

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Corporation tax

Receipts from corporation tax amounted to around €47m in August, generally a low-revenue month for this tax. This represented an increase over August 2017, when revenue totalled approximately €25m. The cumulative result is more meaningful: Taken cumulatively, cash receipts from corporation tax were up by 10.1% on the year in the January–August period, to reach approximately €18.3bn.

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Assessed income tax

Revenue from assessed income tax in August was also mainly generated from assessment activities, with gross receipts increasing to around €1.0bn (an increase of 34.9% in year-on-year terms). Employee refunds also posted a rise (of 9.9%). After subtracting these (along with investment allowance payments and owner-occupied homes premiums, which are negligible in terms of amount), net refunds of assessed income tax amounted to approximately €0.5bn in August 2018. In cumulative terms, cash receipts from assessed income tax totalled €31.4bn in the January–August 2018 period, an increase of 1.2% on the year.

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Non-assessed taxes on earnings

August 2018 saw a 59.4% year-on-year drop in gross receipts from non-assessed taxes on earnings. Taking into account a decline in refunds paid out by the Federal Central Tax Office, which are financed from this revenue, cash receipts from non-assessed taxes on earnings fell by 61.6% in August 2018. This represents a downwards correction following several months of strong growth in revenue from these taxes as a result of changes in dividend dates. Cumulative cash receipts from non-assessed taxes on earnings were up by 13.4% on the year in the January–August period.

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Final withholding tax on interest and capital gains

Revenue from final withholding tax on interest and capital gains rose by 6.1% on the year in August 2018. Taken cumulatively, cash receipts from final withholding tax on interest and capital gains were up by 6.4% in year-on-year terms in January–August 2018.

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Value added taxes (VAT)

The yield from value added taxes posted a significant increase of 8.6% on the year in August 2018. This was the highest increase in any month of 2018 so far and represents a strong upwards correction following the weak revenue trend in 2017. Revenue from domestic VAT rose sharply, by 7.9% in year-on-year terms, while import VAT receipts climbed by 10.4% on the year. Cumulative cash receipts from value added taxes were up by 3.6% on the year in the first eight months of 2018.

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Taxes accruing to the Federation

Receipts from taxes accruing solely to the Federation were up by 14.7% on the year in August 2018. However, revenue growth was considerably inflated due to the trend in receipts from nuclear fuel duty. In August 2018, no income or expenditure was posted with regard to nuclear fuel duty. However, in August 2017, refunds of around €1.0bn were paid out. Excluding this effect, the rise in revenue from federal taxes would have totalled around 1.8%. Solidarity surcharge, motor vehicle tax, electricity duty and insurance tax all posted year-on-year revenue gains in August 2018 (up by 7.0%, 6.3%, 9.7% and 2.8%, respectively). Receipts from tobacco duty and energy duty were down on the year in August (by 5.7% and 0.3%, respectively). Trends in revenue from other taxes had only a minor impact on the overall results for federal taxes.

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Taxes accruing to the Länder

Revenue from taxes accruing solely to the Länder was up by 2.5% on the year in August 2018. This trend was driven by a significant increase in revenue from real property transfer tax (+5.0%) and higher receipts from betting and lottery tax (+9.6%). The yield from beer duty also increased by 3.2% in year-on-year terms. Revenue from fire protection tax remained roughly at last year’s level (-0.4%). Receipts from inheritance tax dropped by 5.0% on the year.

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Borrowing and guarantees

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Guarantees

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Calendar

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