Federal budget trends up to and including December 2020

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Tax revenue in December 2020

Total tax revenue (excluding local authority taxes) was down by 2.1% in December 2020 compared with the same month the previous year. The economic effects of the coronavirus pandemic continued to have a negative impact on tax revenue. As in previous months, virus-related measures taken on the basis of secondary legislation also affected tax revenue. The temporary cuts in VAT rates in the second half of 2020 continue to reduce VAT receipts. However, tax revenue in December 2020 was significantly higher than expected. Substantial increases were posted for non-assessed taxes on earnings and withholding tax on interest and capital gains. Receipts from joint taxes were down by 3.1% on the year. Revenue from taxes accruing solely to the Federation rose by 0.7%. Receipts from taxes accruing solely to the Länder were up by 9.1% on the year due to strong growth in receipts from inheritance tax.

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EU own resources

Transfers of own resources to the EU, including customs duties, climbed by about €2.0bn on the year in December 2020 to roughly €3.5bn, up from €1.5bn in December 2019. In October 2020, the EU approved an amending budget for 2020. In November and December 2020, the outstanding own resources contributions resulting from the amending budget were settled retroactively for all prior months of 2020. This led to a peak in monthly payments of own resources. Monthly fluctuations occur over the course of the year based on the EU’s financing needs at any given time. In general, they are based on the annual EU budget that is in force for the respective year.

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Overview of fiscal year 2020

Total tax receipts in fiscal year 2020 were down by 7.3% on the year. Revenue from joint taxes was down by 8.6%, and revenue from taxes accruing solely to the Federation was down by 3.6%. Revenue from taxes accruing solely to the Länder grew by 7.4%.

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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) fell by 9.3% on the year in December 2020. The Federation’s take from joint taxes declined by 6.6%. Among other factors, an amendment of the Fiscal Equalisation Act (Finanzausgleichsgesetz) under the Second Coronavirus Tax Assistance Act (Zweites Corona-Steuerhilfegesetz) has led to a significant year-on-year reduction in the Federation’s share of revenue from value added taxes and increased the shares of the Länder and local authorities accordingly. The purpose of this was to compensate the Länder for their lower tax revenue resulting from (a) the one-time bonus for families with children, which was financed from wages tax revenue, and (b) the temporary reduction in the VAT rate. In addition, the Federation provided approximately €153m to the Länder under the Act Adjusting Supplementary Federal Grants under Section 11 (4) of the Fiscal Equalisation Act and on the Federation’s Participation in Refugee-Related Expenses of the Länder (Gesetz zur Anpassung der Ergänzungszuweisungen des Bundes nach § 11 Absatz 4 des Finanzausgleichsgesetzes und zur Beteiligung des Bundes an den flüchtlingsbezogenen Kosten der Länder) of 3 December 2020. The reduction in the VAT rate has also caused revenue from value added taxes to fall overall. In December, the Federation’s take from VAT revenue was down by 25.3% on the year. In addition to lower VAT revenue, another factor driving the sharp decline in the Federation’s tax receipts in December was the steep year-on-year increase in own resources payments to the EU. Moreover, supplementary federal grants to the Länder were higher than in December 2019. Receipts from taxes accruing solely to the Federation recorded a slight increase of 0.7%.

Länder tax receipts posted a slight increase of 0.2% on the year in December 2020. Länder VAT revenue rose by 1.9% on the year as a result of the federal allocations described above. However, the discontinuation of the increased trade tax apportionment had a negative impact on Länder tax revenue totals. Länder receipts from joint taxes declined by 0.9% overall. In contrast, the yield from taxes that accrue exclusively to the Länder posted a robust gain of 9.1%. Local authorities’ take from their share of joint taxes was 3.0% higher than in December 2019. 

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Joint taxes

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Wages tax

Gross wages tax revenue in December 2020 declined by 0.3% on the year. Child benefit payments – which are financed from wages tax receipts – rose by 4.0% on the year. Overall, cash receipts from wages tax recorded a slight year-on-year decline of 0.9%. In fiscal year 2020, cash receipts from wages tax were 4.7% lower than in the previous year.

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Corporation tax

Gross receipts from corporation tax were up by 2.3% in December, a month when prepayments are due and revenue therefore tends to be high. The improvement in the balance between back-payments and refunds outweighed the decline in prepayments. One factor was a substantial revenue increase resulting from assessments for years prior to 2017. Investment allowance payments hardly affected the overall result due to their low volume. As a result, cash receipts from corporation tax also increased by 2.3%. In fiscal year 2020, cash receipts from corporation tax fell by 24.2% on the year.

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Assessed income tax

Gross receipts from assessed income tax posted a year-on-year decline of 3.2% in December, a month in which prepayments are due. Prepayments fell slightly, while the balance of back payments and refunds remained nearly unchanged. Overall, gross revenue from this tax declined in fiscal year 2020. Employee refunds dropped by 28.6% on the year in December; 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 fell by 2.1% on the year in December 2020. In cumulative terms, cash receipts from assessed income tax recorded a significant year-on-year decline of 7.4% in 2020.

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Non-assessed taxes on earnings

Gross receipts from non-assessed taxes on earnings were up by 38.4% on the year in December 2020. Refunds by the Federal Central Tax Office, which are financed from this revenue, totalled about €165m. As a result, cash receipts from non-assessed taxes on earnings were 35.9% higher than in December 2019. Corporate shareholders’ meetings have been delayed this year due to the coronavirus pandemic, so the timing of dividend payments decided at these meetings has shifted as well. Over the course of the fiscal year, cumulative cash receipts from non-assessed taxes on earnings were down by 8.5% compared with 2019.

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Final withholding tax on interest and capital gains

Revenue from final withholding tax on interest and capital gains grew by 64.9% on the year in December 2020. Over the course of 2020, monthly revenue from this tax fluctuated significantly, as economic trends apparently led investors to realise gains from their investments in securities. In cumulative terms, cash receipts from final withholding tax on interest and capital gains posted a year-on-year increase of 31.4% in fiscal year 2020.

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Value added taxes

Receipts from value added taxes fell by 9.7% on the year in December 2020, with declining yields from both domestic VAT (down by 7.8%) and import VAT (down by 16.0%). This was mainly the result of the temporary cuts in VAT rates during the second half of 2020. Cumulative cash receipts from value added taxes recorded a year-on-year drop of 9.8% in fiscal year 2020.

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Taxes accruing to the Federation

In December 2020, revenue from taxes accruing solely to the Federation was up by 0.7% compared with the same month of 2019. In the case of some taxes, the tax measures that were introduced to improve the liquidity of companies resulted in a decline in revenue. However, December saw revenue gains for insurance tax (up by 7.2%), motor vehicle tax (up by 10.3%), alcohol duty (up by 70.1%) and tobacco duty (up by 36.3%). In the case of tobacco duty, roughly €230m in revenue from November was not posted until December. In contrast, receipts from energy duty and electricity duty were down on the year, by 7.5% and 3.5%, respectively. Global air traffic has come to an almost complete halt since spring 2020 as a result of the pandemic. This, together with tax deferrals, caused aviation tax revenue to plummet by 73.2% on the year in December 2020. Revenue from the solidarity surcharge recorded a slight rise of 0.8% as a result of higher receipts from income tax and corporation tax (which constitute its tax base). Trends in revenue from other taxes had only a minor impact on overall receipts from federal taxes. Cumulative receipts from taxes accruing solely to the Federation recorded a year-on-year drop of 3.6% in 2020.

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Taxes accruing to the Länder

Receipts from taxes accruing solely to the Länder were up by 9.1% on the year in December 2020. This was driven primarily by a significant increase in revenue from inheritance tax, which was up by 23.3%. Other taxes posting revenue growth included beer duty (up by 1.5%), betting and lottery tax (up by 24.6%), real property transfer tax (up by 1.6%) and fire protection tax (up by 2.4%). Cumulative receipts from taxes accruing solely to the Länder recorded a year-on-year increase of 7.4% in 2020.

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Borrowing and guarantees