Federal budget trends in June 2021

Revenue

Federal revenue in the first half of 2021 totalled approximately €147.0bn, down by 1.5% (about €2.3bn) on the year. Tax receipts (taking into account transfers of own resources to the EU) were up by 0.8% (roughly €1.1bn) on the year. Revenue from income tax and corporation tax increased by 8.6% (roughly €5.7bn), while the yield from value added taxes rose by 7.3% (roughly €3.6bn) on the year. Revenue from the solidarity surcharge was down by 37.6% (approximately €3.4bn), largely due to the abolition this year of the solidarity surcharge for approximately 90% of wages tax and income tax payers. Payments to the EU (GNI-based own resources and VAT-based own resources) increased by about €4.7bn in year-on-year terms.

Other revenue was down by 25.4% (approximately €3.4bn) on the year in the first half of 2021. This was mainly due to the fact that the Federation’s share of the Bundesbank’s net profits was not remitted. In the previous year, the Bundesbank transferred approximately €5.9bn to the Federation, of which €2.5bn remained in the federal budget. The other €3.4bn had to be allocated to the special investment and redemption fund to repay the fund’s debts.

Expenditure

Measures to counteract the coronavirus pandemic and its effects are having a significant impact on budget execution in 2021. Federal expenditure in the first half of 2021 totalled approximately €245.6bn, up by 22.7% (roughly €45.5bn) on the year. A breakdown by economic category shows that higher spending in the January–June period was driven mainly by consumption spending, which was up by 16.5% (approximately €30.9bn). Ongoing grants and subsidies to public administrations, businesses and social security funds accounted for most of this increase. Grants to public administrations rose by 22.9% (roughly €4.6bn) on the year; the allocation of approximately €2.5bn to the energy and climate fund was a major factor in this increase. Last year, the allocation to the energy and climate fund from the federal budget was not made until November. Subsidies to businesses grew by 24.5% (roughly €7.4bn) on the year; most of this increased spending consisted of assistance to businesses affected by the fallout from the pandemic. About €23.0bn of the funds earmarked for this purpose were disbursed by 30 June 2021. Grants to social security funds were up by 21.8% (around €15.5bn) on the year. This includes roughly €10.0bn in disbursements to the health fund to cover costs caused by the pandemic. These grants also include €3.0bn in disbursements to the health fund’s liquidity reserves for a programme to future-proof hospitals.

Investment spending totalled approximately €27.5bn, an increase of 113.1% (roughly €14.6bn) over June 2020. The main factor driving this increase was liquidity assistance provided to the Federal Employment Agency (roughly €13.9bn so far this year), which was booked in the form of loans. In contrast, fixed asset investment was down by 46.5% (about €2.0bn) due to a decline in spending on construction projects. The year-on-year decline in construction spending is due mainly to a special factor that will affect the entire year: as of 2021, investments in trunk road construction are being outsourced to Autobahn GmbH des Bundes (Federal Autobahn GmbH). These funds are being provided to Autobahn GmbH des Bundes in the form of investment grants, which were up by approximately €1.3bn on the year in June 2021. Approximately €5.5bn has been earmarked for these investment grants in 2021. As a result, about €4.7bn less has been budgeted for construction investment in 2021 than in 2020 (and about €4.2bn less than the amount that was actually spent on construction investment in 2020).

Fiscal balance

The federal budget recorded a deficit of €98.6bn in the first half of 2021.

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.

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Tax revenue in June 2021

Total tax revenue (excluding local authority taxes) was up by 12.9% on the year in June 2021. However, it is important to note the low baseline figure, as tax revenue in June 2020 was down significantly due to the tax measures that were taken to mitigate the effects of the pandemic. Compared with June 2019 (i.e. the same month in the year prior to the crisis), tax revenue in June 2021 was down by 8.6%. Total receipts from joint taxes were up by 14.3% on the year in June 2021. Revenue from taxes accruing solely to the Federation was up by 2.2% on the year in June, while receipts from taxes accruing to the Länder rose by 19.6%.

EU own resources

Transfers of own resources to the EU, including customs duties, were up by just under €1.5bn on the year in June 2021. In general, monthly requisitions are based on the annual EU budget that is in force for the respective year. In June of each year, balances are routinely adjusted to take account of corrections for previous years. This can lead to positive or negative fluctuations in member state contributions, but such fluctuations flatten out in annualised terms. In the past two years, these balance adjustments have gone in Germany’s favour: by €1.5bn in June 2020 and by €443m in June 2021.

Overview of the January–June 2021 period

In the first half of 2021, total tax receipts (excluding local authority taxes) were up by 5.9% on the year. Revenue from joint taxes rose by 8.0%, while receipts from taxes accruing solely to the Federation declined by 6.5%. Revenue from taxes accruing solely to the Länder was up by 10.4%.

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 7.3% on the year in June 2021. Revenue from purely federal taxes posted a gain of 2.2%, and the Federation’s take from joint taxes rose by 14.8%. In contrast, transfers of own resources to the EU and supplementary federal grants to the Länder were both up sharply.

Länder tax receipts also increased markedly on the year in June 2021, by 15.0%. The revenue from joint taxes that is allocated to the Länder rose by 15.3%. In addition, the yield from taxes that accrue exclusively to the Länder posted a robust gain of 19.6%. Local authorities’ take from their share of joint taxes was 6.9% higher than in the same period last year.

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Joint taxes

Wages tax

Gross revenue from wages tax was up by 5.7% on the year in June, despite the reductions in revenue caused by tax relief measures in the current year (i.e. the increase in the basic personal allowance and the related shift in the other tax thresholds). Cash receipts in June included wages tax that was remitted for May 2021. The number of employees in short-time work was much lower in May 2021 than in the previous May, and this likely made a major contribution to the growth in revenue. Receipts were also boosted by a slight uptick in employment, which grew in May 2021 for the first time since the onset of the pandemic. Nevertheless, cash receipts from wages tax posted only a small year-on-year gain of 1.9% in June 2021, mainly because child benefit payments – which are financed from wages tax receipts – climbed by 24.2% on the year. This large increase is likely related to child bonus payments of €150. Most of these payments were disbursed in May, but some were not reflected in government accounts until June. In addition, since 1 January 2021, the €15 per child increase in child benefit enacted under the Second Family Tax Burden Reduction Act (Zweites Familienentlastungsgesetz) has also served to reduce wages tax revenue totals. In the first half of 2021, cash receipts from wages tax were down by 2.4% on the year.

Corporation tax

Gross corporation tax revenue was up by 51.0% on the year in June (a key revenue month because prepayments are due), mainly due to the low baseline figure from the previous June, when gross corporation tax receipts fell by 38.1% compared with the same month in 2019. At that time, regular prepayments of corporation tax declined by about 25% due to (a) the pandemic-related recession and (b) the tax options contained in the package of measures to mitigate the effects of the crisis. Revenue was further reduced by deferrals of tax payments. In June 2021, prepayments were up sharply by 24% but still remained below the level of June 2019. Gross corporation tax revenue in June 2021 was still down by 6.5% compared with the same month two years ago. The tax allowance for research was granted for the first time in June 2021, in an amount of approximately €0.5m. Because of their low volume, investment allowance payments had hardly any influence on receipts in June 2021. In cumulative terms, cash receipts from corporation tax were up by 75.8% on the year in the first half of 2021.

Assessed income tax

Gross receipts from assessed income tax were up by 15.4% on the year in June (a month when prepayments are due). As was the case with corporation tax, pandemic-related tax measures significantly lowered the 2020 baseline. Prepayments for the current year were up by approximately 12% over June 2020 and slightly higher than in June 2019. Gross revenue from assessed income tax totalled €15.6bn in June 2021. This was just slightly below pre-pandemic levels (€15.7bn in June 2019). Employee refunds, which are subtracted from the gross figure, were 15.8% higher on the year. Investment allowance payments and owner-occupied homes premiums, which are increasingly insignificant in terms of amount, are also subtracted from the gross figure. The tax allowance for research was granted for the first time, in an amount of roughly €13,000. In cumulative terms, cash receipts from assessed income tax were up by 9.6% on the year in the first half of 2021.

Non-assessed taxes on earnings

Gross receipts from non-assessed taxes on earnings were up by 97.7% on the year in June 2021. In 2020, pandemic-related restrictions led to the postponement of many shareholders’ meetings, which in turn shifted the timing of dividend payments. As a result, revenue from non-assessed taxes on earnings was very low in June 2020 (down by 61.8% compared with June 2019). This helps explain the sharp gain recorded in June 2021. Refunds by the Federal Central Tax Office, which are financed from this revenue, were up only slightly by 2.9% on the year. Overall, cash receipts from non-assessed taxes on earnings were up by 102.6% on the year in June 2021. Cumulatively, cash receipts from non-assessed taxes on earnings grew by 27.9% on the year in the first half of 2021.

Final withholding tax on interest and capital gains

Revenue from final withholding tax on interest and capital gains was up by 83.5% on the year in June 2021. In cumulative terms, cash receipts from this tax rose by 44.6% on the year in the first half of 2021.

Value added taxes

Revenue from value added taxes was up by 1.5% on the year in June 2021, with receipts from domestic VAT recording a gain of 9.8%. VAT receipts were down sharply in June 2020 due to (a) lockdown-related revenue losses and (b) deferrals granted as part of the package of tax measures taken to cushion the effects of the crisis. Starting in 2021, the due date for paying import VAT was moved to the 26th day of the month. Depending on how many working days remain in a given month, some revenue may not be posted to government accounts until the following month. This new arrangement led to a 24.7% decline in import VAT revenue in June 2021. Cumulatively, cash receipts from value-added taxes were up by 7.8% on the year in the first half of 2021.

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Taxes accruing to the Federation

In June 2021, revenue from taxes accruing solely to the Federation was up by 2.2% on the year. Revenue increased significantly in the case of energy duty (up by 19.4%), motor vehicle tax (up by 12.7%), tobacco duty (up by 20.8%) and insurance tax (up by 6.6%). It is fair to assume that energy duty receipts were affected by the very sharp pandemic-related reduction in mobility in spring 2020 and the corresponding decline in fuel consumption. Although mobility remained noticeably restricted this spring, it was nonetheless higher than last year’s levels. In contrast, receipts from electricity duty and alcohol duty were down on the year, by 14.6% and 7.2%, respectively. Receipts from the solidarity surcharge fell by 29.2%, mainly as a result of its near-complete abolition. Trends in revenue from other taxes had only a minor impact on overall receipts from federal taxes. In cumulative terms, cash receipts from taxes accruing solely to the Federation were down by 6.5% in the first half of 2021.

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Taxes accruing to the Länder

Receipts from taxes accruing solely to the Länder were up markedly by 19.6% on the year in June 2021. Significant revenue gains were recorded for real property transfer tax (up by 20.6%), inheritance tax (up by 14.2%) and betting and lottery tax (up by 32.3%). Beer duty was also up sharply by 73.9%, while fire protection tax revenue fell slightly by 0.9%. In cumulative terms, revenue from taxes accruing solely to the Länder was up by 10.4% on the year in the first half of 2021.

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Borrowing and guarantees

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