Federal budget trends up to and including September 2018

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Revenue

Federal revenue for the January–September 2018 period totalled €253.4bn, a year-on-year rise of 6.8% (€16.1bn). Tax revenue (including EU own resources) increased by 5.8% (€12.8bn). This can partly be attributed to a baseline effect: In 2017, approximately €7.3bn of nuclear fuel duty (including interest) had to be returned 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 €7.1bn higher than in the same period of 2017. However, transfers of GNI-based own resources to the EU were up by approximately €5bn on the year, which had a dampening effect.

Other revenue posted a year-on-year gain of 20.7% (€3.3bn) in the January–September 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 September 2018 totalled €247.3bn, an increase of 1.5% (€3.5bn) on the year. Federal spending is separated into consumption and investment expenditure. In the January–September 2018 period, consumption spending was 1.9% higher than in the same period of 2017. This can be attributed primarily to increases in military procurement spending (up by 7.4%) and in ongoing grants to public administrations (up by 19.7%). In the latter category, the Federation’s allocation of €2.8bn to the Energy and Climate Fund had the biggest impact on results. In addition, this category also includes increased 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–September 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, mainly as a result of increased allocations to the general pension insurance system (up by 3.8%). Interest expenditure fell by 6.6% on the year, slowing the increase in consumption spending. Investment spending totalled roughly €20bn, which represents approximately 50% of the target level for 2018. 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 3.3% on the year in the January–September 2018 period. This is mainly due to the allocations made in August 2017 to increase the equity of Deutsche Bahn AG by €1bn. Fixed asset investment saw a significant rise of 3.1% on the year, boosting investment spending.

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Fiscal balance

The federal budget recorded a surplus of €6.1bn for the period from January to September 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 September 2018

Total tax revenue (excluding local authority taxes) was up by 5.8% in September 2018 over the same month last year. Revenue from joint taxes saw a disproportionately large rise of 7.4%, with receipts from wages tax and corporation tax posting particularly high growth. Yields also increased for value-added taxes and non-assessed taxes on earnings. Revenue from taxes accruing solely to the Federation was down by 2.2% on the year. However, this figure was skewed downwards as a result of a technical effect. Receipts from taxes accruing to the Länder declined by 0.9% on the year.

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EU own resources

Transfers of own resources to the EU, including customs duties, stood at approximately €2.5bn in September 2018, 13.8% more than in September 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–September 2018 period

In the first nine months of 2018, total tax receipts increased by 6.3% on the year. Broken down by category, revenue from joint taxes was up by 5.4%, receipts from federal taxes saw a rise of 12.1%, and the yield from Länder taxes increased by 6.3%.

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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 4.3% on the year in September 2018. Länder tax receipts recorded a year-on-year gain of 6.6%. These results were driven by the increased share of revenue from joint taxes allocated to the Federation and the Länder : The Federation’s share increased by 7.3% and the Länder’s share rose by 7.6%. The Federation’s tax take was reduced by a slight year-on-year increase in deductions (EU own resources and supplementary federal grants to the Länder) and a lower take from federal taxes. The local authorities’ take from joint taxes was up by 6.8% on the year.

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Joint taxes

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Wages tax

Wages tax receipts again recorded strong growth in September 2018, with gross revenue from this tax increasing by 5.8% on the year. This reflected continuing employment growth and rising incomes in Germany. Salary back-payments for 2018 are likely to have increased the yield from wages tax in September, as well. Child benefit payments – which are financed from wages tax receipts – fell by 1.9% on the year in September 2018. One Land is experiencing problems with preparing the underlying data for child benefit payments, which continues to skew this figure. However, this effect had no impact on cash receipts. On balance, cash receipts from wages tax increased by 7.5% on the year in September 2018. Cumulative cash receipts from wages tax were up by 6.4% on the year in the January–September 2018 period.

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Corporation tax

Gross receipts from corporation tax were up by 31.3% in September, a month when prepayments are due and revenue therefore tends to be high. On balance, after accounting for lower back-payments on the one hand, but also lower refunds on the other hand, the rise in prepayments led to a better overall result. Cash receipts from corporation tax recorded a cumulative gain of 15.6% on the year for the nine months from January to September 2018.

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Assessed income tax

As with corporation tax, prepayments for assessed income tax are due in September, meaning that roughly a fifth of the annual yield from this tax tends to be generated in this month. Here too, prepayments posted robust gains. However, a decline in back-payments and an increase in refunds both slowed revenue growth, which stood at 3.0% on the year. Employee refunds also posted a rise (of 14.1%). After subtracting these (along with investment allowance payments and owner-occupied homes premiums, which are negligible in terms of amount), cash receipts from assessed income tax rose by 2.1%. In cumulative terms, cash receipts from assessed income tax were up by 1.5% on the year in the first nine months of 2018.

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Non-assessed taxes on earnings

September 2018 saw an 8.2% year-on-year rise 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 rose by 15.2%. Overall, the trend in revenue from non-assessed taxes on earnings has been very volatile over the course of the year. The cumulative result provides a more solid basis for analysis: Cumulative cash receipts from non-assessed taxes on earnings were up by 13.5% on the year in the January–September period.

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Final withholding tax on interest and capital gains

Revenue from final withholding tax on interest and capital gains fell by 7.5% on the year in September 2018. Taken cumulatively, cash receipts from final withholding tax on interest and capital gains were up by 5.3% in year-on-year terms in January–September 2018.

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Value added taxes (VAT)

The yield from value added taxes posted a rise of 3.6% on the year in September 2018. Revenue from domestic VAT increased by 3.0% in year-on-year terms, while import VAT receipts climbed by 5.3% on the year. Cumulative cash receipts from value added taxes were up by 3.6% on the year in the first nine months of 2018.

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Taxes accruing to the Federation

In September 2018, revenue from federal taxes was 2.2% below last year’s level. The main cause for this was the fact that roughly €200m in revenue from tobacco duty will not be recorded until October, which also explains the sharp 19.1% drop in tobacco duty receipts. An opposite effect is expected to occur in October. Taxes posting revenue growth included solidarity surcharge (up by 5.1%) and energy duty (up by 1.3%). Alongside tobacco duty, taxes recording year-on-year revenue declines included insurance tax (down by 9.1%) and motor vehicle tax (down by 5.7%). 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 fell by 0.9% on the year in September 2018. This is attributable to a year-on-year drop of 10.2% in inheritance tax receipts. The take from betting and lottery tax remained roughly unchanged from 2017 (down by 0.3%). Revenue growth was recorded for real property transfer tax (+2.7%), beer duty (+6.1%) and fire protection tax (+9.3%).

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Borrowing and guarantees

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Guarantees

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Calendar