Federal budget trends up to and including March 2020
Actual 2019 | 2020 target1 | Actual2 March 2020 | |
|---|---|---|---|
Expenditure (€bn)3 | 343.2 | 484.5 | 92.3 |
Year-on-year change in % (year to date) | +4.5 | ||
Revenue (€bn)4 | 356.5 | 317.5 | 85.4 |
Year-on-year change in % (year to date) | +9.0 | ||
Tax revenue (€bn) | 329.0 | 291.5 | 74.2 |
Year-on-year change in % (year to date) | +3.8 | ||
Balance of pass-through funds (€bn) | 0.0 | 0.0 | 0.0 |
Fiscal balance (€bn) | 13.3 | -167.0 | -6.9 |
Financing/use of surplus: | -13.3 | 167.0 | 6.9 |
Cash resources (€bn) | - | - | 57.8 |
Seigniorage (€bn) | 0.2 | 0.3 | 0.0 |
Movements in reserves5 (€bn) | -13.5 | 10.6 | 0.0 |
Net borrowing6 (€bn) | 0.0 | 156.0 | -51.0 |
| Any discrepancies in totals are due to rounding. 1Including supplementary budget in accordance with Bundestag decision of 27 March 2020. 2As per accounts. 3With the exception of expenditure on the repayment of debt incurred on the credit market, allocations to reserves and expenditure made to cover a cash deficit. Excluding expenditure from internal offsetting. 4With the exception of revenue from loans on the credit market, withdrawals from reserves, revenue from cash surpluses and seigniorage. Excluding revenue from internal offsetting. 5Negative values denote accumulation of reserves. 6(-) debt repayment; (+) borrowing Source: Federal Ministry of Finance | |||
Supplementary budget for 2020
The German Bundestag adopted legislation to enact a supplementary budget for 2020 to finance measures to counteract the effects of the coronavirus pandemic. The legislation was published on 27 March 2020 (Federal Law Gazette I, no 14, p. 556).
The additional measures covered by the supplementary budget encompass total expenditure of approximately €122.5bn. Moreover, tax revenue is expected to be €33.5bn lower than originally anticipated in the 2020 budget. The Federal Ministry of Finance has been authorised to borrow approximately €156bn to cover these costs.
To make this possible, the Bundestag gave the federal government permission to exceed the otherwise binding borrowing limit of 0.35% of GDP this year, based on the exception for unusual emergency situations enshrined in Article 115 (2) of the Basic Law (Grundgesetz).
The impact of the coronavirus pandemic on the federal budget will not be reflected in year-on-year revenue and expenditure trends until April at the earliest.
Revenue
Federal revenue in the period from January to March 2020 totalled approximately €85.4bn, up by 9.0% (about €7.0bn) over the same period last year. Tax revenue (including transfers of EU own resources to the EU) rose by 3.8% (approximately €2.7bn) on the year.
Other revenue recorded a year-on-year gain of 62.8% (about €4.3bn). This was mainly due to a €3.4 increase in the Federation’s share of the Bundesbank’s net profit. However, the portion of this amount that exceeds the estimate contained in the federal budget must be allocated to the special investment and redemption fund to repay its debts. This year, this allocation totals approximately €3.4bn. The Federal Cartel Office’s revenue was also up on the year, as were receipts from the distance-based commercial vehicle toll.
Expenditure
Federal expenditure in the first three months of 2020 totalled around €92.3bn, an increase of 4.5% (roughly €3.9bn) over the same period last year. Federal spending is separated into consumption and investment spending. Consumption spending was up by 4.9% (approximately €4bn) on the year in the first three months of 2020. This figure includes a 5.7% (approximately €3.1bn) year-on-year increase in ongoing grants to “other areas”. Two key factors driving this trend were (a) grants for the permanent discontinuation of subsidised coal mining, which were due in 2020 and have now been fully disbursed (an increase of about €1bn on the year) and (b) higher payments to social security funds (an increase of about €1.2bn on the year). Interest expenditure saw a year-on-year decline of 17.2% (approximately €0.9bn).
Investment spending stood at €5.8bn after the first three months of 2020, a marginal decline of 1.1% (or about €0.1bn) compared with the same period last year. This figure notably includes lower spending resulting from the discontinuation of compensation payments from the Federation to the Länder (the Federation and Länder agreed to end these payments as part of the reorganisation of financial relations between government levels that took effect at the start of 2020). Instead of receiving compensation payments, the Länder now receive a higher share of VAT revenue. Investment spending in the area of construction saw a year-on-year rise of 45.3% (approximately €0.4bn).
Fiscal balance
The federal budget recorded a deficit of €6.9bn for the January–March 2020 period.
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 any given 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.
This is especially true towards the start of the year.
Trends in federal expenditure by function
Trends in federal expenditure by economic category
Trends in federal revenue
Tax revenue in March 2020
Total tax revenue (excluding local authority taxes) fell by 1.8% on the year in March 2020. Receipts from value added taxes and corporation tax recorded year-on-year declines. In contrast, revenue from wages tax and assessed income tax rose on the year in March, which is an important month for prepayments. Once again, the yield from withholding tax on interest and capital gains saw major growth. Thanks to higher dividend payments in March 2020, receipts from non-assessed taxes on earnings increased significantly on the year. Receipts from taxes accruing solely to the Federation posted a substantial year-on-year fall of 8.3%, while revenue from taxes accruing to the Länder surged by 16.3%.
The current coronavirus pandemic and the tax measures implemented in connection with the crisis had hardly any impact on tax revenue in March. This is because of the inherent time lag in the remittance of taxes to the revenue administration. For example, wages tax withheld by employers in February in accordance with section 41a of the Income Tax Act (Einkommensteuergesetz) does not have to be remitted to tax offices until 10 March. In Germany, the shutdown began in mid-March, so its economic impact will not affect tax revenue until the coming months. The tax measures adopted by the Federation and the Länder in response to the pandemic will have a more direct impact on revenue trends. These measures were published in a BMF circular entitled “Tax measures to address the effects of the coronavirus (COVID-19/SARS-CoV-2)”, dated 19 March 2020 (IV A 3 - S 0336/19/10007:002). Although the revenue administration started implementing the measures immediately, the necessary administrative processing time of several days means that the associated revenue shortfalls will not be seen on a large scale until April.
EU own resources
Transfers of own resources to the EU, including customs duties, totalled approximately €1.7bn in March 2020, a year-on-year decline of 35.1%. In January, the European Commission had already drawn down an additional twelfth of the amount earmarked for the entire year, for the purpose of financing its functions. In March, the Commission drew down a significantly lower amount of VAT-based and GNI-based own resources compared with March 2019. Monthly fluctuations occur over the course of the year based on the EU’s financing needs at any given time. However, monthly requisitions are generally in line with the financial framework for the current year.
Overview of the January–March 2020 period
In the first quarter of 2020, tax receipts increased by 3.5% overall in year-on-year terms. This upward trend was apparent in receipts from joint taxes (up by 3.3%), taxes accruing to the Länder (up by 13.4%), and taxes accruing to the Federation (up by 2.3%).
Distribution among the Federation, Länder and local authorities
The Federation’s tax receipts (after accounting for supplementary federal grants to the Länder) were down by 3.7% on the year in March 2020. One reason for this was a substantial year-on-year decline of 8.3% in receipts from taxes accruing solely to the Federation. In addition, the Federation’s share of joint taxes also fell considerably (by 3.8%), partly due to lower receipts from joint taxes. Moreover, the reorganisation of the fiscal equalisation system, which came into effect on 1 January 2020, changed the distribution of VAT revenue to the Federation’s disadvantage. This, in conjunction with low VAT revenue, resulted in a 17.3% year-on-year decline in the Federation’s take from its share of VAT revenue. In addition, supplementary federal grants to the Länder were markedly higher in March 2020 than in the same month of 2019. Despite all this, the decline in the Federation’s tax receipts in March 2020 was relatively moderate. This can be attributed to the sharp year-on-year decline in transfers of own resources from the federal budget to the European Union.
In contrast, Länder tax receipts were up by 1.7% on the year in March 2020. Receipts from the share of joint taxes allocated to the Länder remained practically unchanged (down by 0.1%). The growth in Länder tax receipts was driven by a substantial rise in revenue from taxes accruing solely to the Länder (up by 16.3%) as well as a 29.3% increase in supplementary federal grants to the Länder. Local authorities’ take from their share of joint taxes was 5.7% higher than in March 2019.
Joint taxes
Wages tax
Wages tax receipts continued to grow in March 2020, with gross revenue increasing by 4.9% on the year. Child benefit payments, which are financed from wages tax receipts, rose by 5.4% on the year due to a €10 per child increase in monthly child benefit that came into effect in July 2019. On balance, cash receipts from wages tax increased by 4.8% on the year in March 2020. Taken cumulatively, cash receipts from wages tax were up by 4.8% on the year in the first quarter of 2020.
Corporation tax
Gross revenue from corporation tax was down by 16.7% on the year in March, which is the first important prepayment month of the year. The prepayment volume declined only slightly, by approximately 1%. The substantial decline in revenue is primarily attributable to an increase in refunds. These refunds are unrelated to the tax measures taken in response to the coronavirus pandemic. Taxpayer paybacks of investment allowance slightly exceeded payouts in March. However, this had only a negligible impact on results. On balance, cash receipts were down by 16.7% on the year in March. In cumulative terms, cash receipts from corporation tax fell by 7.6% on the year in the first quarter of 2020.
Assessed income tax
Gross receipts from assessed income tax recorded a slight year-on-year increase of 0.7% in March, the first prepayment month of 2020. The prepayment volume rose by approximately 4%. Employee refunds were down by 28.1% on the year in March. After these are subtracted from the gross figure (along with investment allowance payments and owner-occupied homes premiums, which are insignificant in terms of amount), net cash receipts from assessed income tax increased by 3.3% on the year in March 2020. In cumulative terms, cash receipts from assessed income tax were up by 7.2% on the year in the first quarter of 2020.
Non-assessed taxes on earnings
March 2020 saw a 51.7% year-on-year rise in gross receipts from non-assessed taxes on earnings. This surge can be attributed to a shift in dividend distribution dates. Refunds by the Federal Central Tax Office, which are financed from this revenue, fell by 38.1% to approximately €85m. As a result, cash receipts from non-assessed taxes on earnings were up by 63.6% on the year. In cumulative terms, cash receipts from non-assessed taxes on earnings were up by 24.1% on the year in the first quarter of 2020.
Final withholding tax on interest and capital gains
Revenue from final withholding tax on interest and capital gains totalled €0.8bn in March 2020, a year-on-year increase of 237.9%. There are no statistics breaking down this figure into its two components, but it can be assumed that the surge is attributable to the contribution made by capital gains. In cumulative terms, cash receipts from final withholding tax on interest and capital gains were up by 71.3% on the year in the first quarter of 2020.
Value added taxes
Receipts from value added taxes declined by 10.8% on the year in March 2020. Receipts from domestic VAT fell substantially on the year, by 11.8%, while import VAT revenue fell by 8.2%. This decline is probably partly attributable to the tax measures adopted in response to the coronavirus pandemic, especially the return of special VAT prepayments. On a cumulative basis, cash receipts from value added taxes recorded a year-on-year decline of 0.6% in the first quarter of 2020.
Federal taxes
In March 2020, revenue from taxes accruing solely to the Federation was 8.3% lower than in the same month last year. The 39.6% year-on-year decline in receipts from insurance tax is particularly noticeable, following a 16.7% rise recorded last month. Fluctuations in cash receipts from insurance tax in the first quarter of the year regularly occur as a result of shifts in payment dates. Taken cumulatively, the yield from this tax in the first quarter of 2020 was within the expected range, with a rise of 3.4% on the year. Receipts from the solidarity surcharge climbed by 2.1% on the year thanks to growth in revenues from income and corporation tax (which constitute its tax base). Revenue from motor vehicle tax and sparkling wine duty also posted gains, up by 1.4% and 6.5%, respectively. The take from energy duty was down by 1.2%. Tobacco duty revenue posted an 18.0% decline from a high 2019 baseline. Revenue from aviation tax fell by 56.7%. Receipts also fell for coffee duty (down by 2.1%) and alcohol duty (down by 2.9%). Trends in revenue from other taxes had only a minor impact on the overall results for federal taxes.
Taxes accruing to the Länder
Revenue from taxes accruing solely to the Länder posted another significant increase in March 2020, up by 16.3% on the year. This was mainly due to substantial growth in revenue from real property transfer tax (up by 17.1%) and inheritance tax (up by 17.8%). The yield from fire protection tax increased by 10.2%, while receipts from betting and lottery tax were up by 13.2%. Revenue from beer duty was up as well, by 0.7%.
Borrowing and guarantees
| Authorised amount | Amount allocated 31 March 2020 | Amount allocated 31 March 2020 | |
International financial institutions | 100.0 | 60.1 | 60.1 |
Treuhandanstalt successor organisations | 1.0 | 1.0 | 1.0 |
Interest compensation guarantees | 15.0 | 15.0 | 15.0 | in € bn | Export credit guarantees | 160.0 | 126.1 | 118.8 | Loans to foreign debtors, foreign direct investment, EIB loans | 80.0 | 41.9 | 44.2 | Financial cooperation projects | 35.0 | 26.8 | 23.6 | Food stockpiling | 0.7 | 0.0 | 0.0 | Domestic guarantees | 430.0 | 197.8 | 105.5 |
Calendar
| Monthly report | Reporting period | Publication date |
| May 2020 issue | April 2020 | 22 May 2020 |
| June 2020 issue | May 2020 | 19 June 2020 |
| July 2020 issue | June 2020 | 21 July 2020 |
| August 2020 issue | July 2020 | 20 August 2020 |
| September 2020 issue | August 2020 | 22 September 2020 |
| October 2020 issue | September 2020 | 22 October 2020 |
| November 2020 issue | October 2020 | 20 November 2020 |
| December 2020 issue | November 2020 | 22 December 2020 |
1In accordance with the IMF’s Special Data Dissemination Standard Plus (SDDS Plus); see http://dsbb.imf.org Source: Federal Ministry of Finance | ||
| 24–25 April 2020 | Eurogroup and informal ECOFIN meetings |
| 18–19 May 2020 | Eurogroup and ECOFIN Council meetings |
| 11–12 June 2020 | Eurogroup and ECOFIN Council meetings |
| 9–10 July 2020 | Eurogroup and ECOFIN Council meetings |
| 18–19 July 2020 | Meeting of G20 finance ministers and central bank governors |
| Click here for the full schedule (in German) | |