Federal budget trends in October 2021

Table: Trends in the federal budget

Expenditure (€bn)³

441.8

547.7

401.3

Year-on-year change in % (year to date)

 

 

+20.0

Revenue (€bn)⁴

311.1

307.3

255.2

Year-on-year change in % (year to date)

 

 

+4.0

Tax revenue (€bn)

283.3

284.0

236.6

Year-on-year change in % (year to date)

 

 

+6.2

Balance of pass-through funds (€bn)

0.0

0.0

0.0

Fiscal balance (€bn)

-130.7

-240.4

-146.1

Financing/use of surplus:

130.7

240.4

146.1

Cash resources (€bn)

-

-

88.9

Seigniorage (€bn)

0.2

0.2

0.2

Movements in reserves⁵ (€bn)

0

0.0

0.0

Net borrowing⁶ (€bn)

130.5

240.2

57.0

Any discrepancies in totals are due to rounding.
¹ Supplementary budget pursuant to the Act Adopting a Supplement to the Federal Budget for the 2021 Fiscal Year (Gesetz über die Feststellung eines Nachtrags zum Bundeshaushaltsplan für das Haushaltsjahr 2021) of 3 June 2021 (Federal Law Gazette I No 29, p. 1410).
² As per accounts.
³ With 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.
⁴ With the exception of revenue from loans on the credit market, withdrawals from reserves, revenue from cash surpluses and seigniorage. Excluding revenue from internal offsetting.
⁵ Negative values denote accumulation of reserves.
⁶ (-) debt repayment; (+) borrowing.
Source: Federal Ministry of Finance

Actual 2020

2021 Projected¹

Actual²
October 2021

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Revenue

Federal revenue for the period from January to October 2021 totalled approximately €255.2bn, up by 4.0% (about €9.9bn) on the year, but still about €24.9bn below the figure for the same period in 2019. Tax receipts (taking into account transfers of own resources to the EU) in the first 10 months of the year were up by 6.2% (about €13.8bn) on the year. Revenue from income tax and corporation tax rose by 13.7% (about €14.4bn), while the yield from value added taxes increased by 16.2% (about €12.9bn) on the year. Revenue from the solidarity surcharge was down by 42.0% (about €6.1bn), largely due to the abolition this year of the solidarity surcharge for approximately 90% of wages tax and income tax payers. Tax revenue growth was also tempered by the trend in payments to the EU (GNI-based own resources and VAT-based own resources), which were up by about €8.9bn on the year.

The category of “other revenue” was down by 17.3% (about €3.9bn) on the year in the January–October period. This was mainly due to the fact that the Federation’s share (€2.5bn) of the Bundesbank’s net profits was not remitted. Fines collected by the Federal Cartel Office were also down by about €0.8bn on the year. Furthermore, the figures for the period reflect the absence of dividend payments by Deutsche Bahn. In 2020, Deutsche Bahn paid the Federation a dividend of €650m.

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Expenditure

Measures to counteract the Covid-19 pandemic and its effects are having a significant impact on budget execution in 2021. Federal expenditure in the first 10 months of 2021 totalled approximately €401.3bn, up by 20.0% (about €66.9bn) on the year. A breakdown by economic category shows that higher spending in the January–October period was driven mainly by consumption spending, which was up by 17.8% (about €53.8bn). Ongoing grants to social security funds and subsidies to businesses made up most of this rise. Subsidies to businesses climbed by 48.9% (about €19.3bn) on the year. Most of this increase consisted of assistance to businesses affected by the fallout from the coronavirus pandemic. About €33.5bn of the funds earmarked for this purpose were disbursed by 30 October 2021. Grants to social security funds were up by 15.8% (about €19.0bn) on the year. This includes a €12.9bn year-on-year increase in disbursements to the health fund to cover pandemic-related costs. These grants also include €3.0bn in disbursements to the health fund’s liquidity reserves for a programme to future-proof hospitals, which was established this year; this is the full amount that was budgeted for this purpose.

Investment spending in the first 10 months of 2021 totalled €44.3bn, an increase of 41.9% (about €13.1bn) over the same period last year. The main factor driving this increase was liquidity assistance provided to the Federal Employment Agency, which was booked in the form of loans and increased by approximately €11.8bn on the year. In contrast, fixed asset investment was down by 46.8% (about €3,8bn) 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: since the beginning of 2021, investments in trunk road construction have been outsourced to Autobahn GmbH des Bundes (Federal Autobahn GmbH). The necessary funds are being provided to Autobahn GmbH des Bundes in the form of investment grants, which rose by approximately €2.9bn on the year in October 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).

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Budget balance

The federal budget recorded a deficit of €146.1bn for the period from January to October 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.

Trends in federal expenditure by function

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Trends in federal expenditure by economic category

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Trends in federal revenue

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Tax revenue in October 2021

2021 trends in tax revenue (excluding local authority taxes)

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Total tax revenue (excluding local authority taxes) was up by 17.5% on the year in October 2021. This increase was largely due to higher revenue from joint taxes, which rose by 24.8% on the year. The strong growth in revenue from wages tax and value added taxes must be viewed in light of the very low baseline from the previous year. Tax revenue in October of last year was significantly lower due to (a) revenue shortfalls caused by the coronavirus crisis and (b) measures adopted as part of the Second Coronavirus Tax Assistance Act (Zweites Corona-Steuerhilfegesetz). In October 2020, as in the previous month, there was a decline in wages tax revenue due to the one-time bonus for families with children. VAT revenue was significantly reduced by the temporary cut in VAT rates in the second half of 2020. Furthermore, revenue from assessed income tax posted a significant increase in October 2021. Revenue from taxes accruing solely to the Federation fell by 8.7% on the year in October, while receipts from taxes accruing to the Länder rose by 5.8%.

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EU own resources

Transfers of own resources to the EU, including customs duties, were up by roughly €1.1bn (41.4%) on the year in October 2021. Due to the UK’s withdrawal from the EU, drawdowns of GNI-based own resources were higher for all remaining member states in 2021. The increase in the EU budget also had an impact. In addition, Germany’s contribution to the EU’s amending budget no 3/2021 (including pre-financing of the Brexit Adjustment Reserve) was settled in October. In general, monthly requisitions are based on the annual EU budget that is in force for the respective year.

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Overview of the January–October 2021 period

In the 10 months from January to October 2021, total tax receipts (excluding local authority taxes) were up by 9.8% over the same period in 2020. Revenue from joint taxes rose by 13.1%, while receipts from taxes accruing solely to the Federation fell by 7.7%. Revenue from taxes accruing solely to the Länder grew by 11.3%.

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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 13.7% on the year in October 2021. The Federation’s take from joint taxes grew by 31.0%. This was higher than the increase in overall revenue from joint taxes, which was up by 24.8%. This discrepancy is due to the fact that the Federation’s share of VAT revenue increased by 34.3%, even though overall VAT revenue was up by only 21.7%. Under section 1 (1) of the Fiscal Equalisation Act (Finanzausgleichgesetz), the Federation receives 52.81% of overall VAT revenue. This share is reduced by annual fixed amounts that the Federation allocates to the Länder and local authorities. Because the amounts of these allocations are fixed for a given year, this means that when VAT revenue goes up, the Federation’s share of VAT revenue goes up as well. Furthermore, the fixed amount that the Federation paid to the Länder in October 2021 was lower than the amount it paid in October 2020. Revenue from taxes accruing solely to the Federation was down by 8.7%. Transfers of own resources to the EU and supplementary federal grants to the Länder were both up sharply.

Länder tax receipts surged by 17.0% on the year in October 2021. Due to the above-described mechanism for distributing VAT revenue, the Länder posted lower rates of growth for VAT revenue (+14.7%) and revenue from joint taxes (+20.2%) than the Federation. In addition, the yield from taxes that accrue exclusively to the Länder posted a robust gain of 5.8%. In addition, supplementary federal grants to the Länder increased by 8.8% on the year, and federal subsidies to the Länder for public transport rose by 3.5%. Local authorities’ take from their share of joint taxes was 22.4% higher than in the same period last year.

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Joint taxes

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Wages tax

Gross revenue from wages tax was up by 5.3% on the year in October, despite the reductions in revenue caused by tax relief measures for taxpayers in the current year (i.e. the increase in the basic personal allowance and the related shift in the other tax thresholds). This upward trend reflects the improvement in conditions on the labour market compared with last year. Child benefit payments – which are financed from wages tax receipts – declined by 27.6% on the year. In October of last year, the disbursement of the second (€100) instalment of the child bonus increased the overall amount of child benefit payments for that month. Overall, cash receipts from wages tax posted a year-on-year gain of 17.6% in October. In cumulative terms, cash receipts from wages tax were up by 3.9% on the year in the first 10 months of 2021.

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Corporation tax

On balance, gross corporation tax refunds totalling approximately €157m were paid out in October 2021, compared to refunds of €67m in October 2020. The gross figure for corporation tax revenue was then modified to account for small outgoing payments of the tax allowance for research and small incoming repayments of investment allowance. These payments totalled around €3.2m and on balance had only a minimal impact on cash receipts from corporation tax. Cumulatively, cash receipts from corporation tax were up by 76.2% on the year in the first 10 months of 2021.

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Assessed income tax

Gross receipts from assessed income tax rose by 143.7% on the year in October. Employee refunds, which are subtracted from the gross figure, were 22.7% lower on the year in October. Investment allowance payments, research allowance payments and owner-occupied homes premiums, which are insignificant in terms of amount, are also subtracted from the gross figure. Altogether, cash receipts from assessed income tax rose to approximately €1.3bn in October 2021 compared to refunds of around €234m in the same month last year. In cumulative terms, cash receipts from assessed income tax were up by 20.8% on the year in the first 10 months of 2021.

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Non-assessed taxes on earnings

Gross receipts from non-assessed taxes on earnings were up by 6.0% on the year in October 2021. Refunds by the Federal Central Tax Office, which are financed from gross revenue, totalled about €68m (down by 65.2% on the year). Overall, cash receipts from non-assessed taxes on earnings were up by 17.0% in October 2021 compared with the same month last year. Cumulatively, cash receipts from non-assessed taxes on earnings were up by 22.4% on the year in the first 10 months of 2021.

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Final withholding tax on interest and capital gains

Revenue from final withholding tax on interest and capital gains was up by 105.9% on the year in October 2021. Cumulative cash receipts from this tax were up by 49.6% on the year in the first 10 months of 2021.

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Value added taxes

Revenue from value added taxes was up by 21.7% on the year in October 2021. Receipts from domestic VAT rose by 11.9%, while receipts from import VAT were up by 56.7%. Companies are routinely granted permanent extensions for filing VAT returns and paying VAT. As a result, VAT revenue from August is not remitted by companies to the government until October. Cash receipts in October 2020 were also reduced by the effects of the reduction in VAT rates in the second half of 2020. Last year’s low baseline figure due to the VAT rate reduction accounts for the bulk of the revenue growth recorded in October 2021. Cumulatively, cash receipts from value added taxes were up by 11.9% on the year in the first 10 months of 2021.

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Taxes accruing to the Federation

In October 2021, revenue from taxes accruing solely to the Federation was down by 8.7% compared with the same month last year, mainly due to the partial elimination of the solidarity surcharge from 1 January 2021 onwards. Revenue from the solidarity surcharge was down by 61.5% on the year. Tobacco duty, motor vehicle tax and electricity duty all posted significant declines in revenue, falling by 7.1%, 6.5% and 12.4%, respectively. In contrast, revenue was up on the year in the case of insurance tax (+4.7%), energy duty (+2.7%) and aviation tax (+227.3%). The surge in aviation tax revenue indicates that air traffic at German airports is growing again following a sharp contraction during the coronavirus crisis, although it still remains far below pre-pandemic levels. 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 7.7% on the year in the January–October period.

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Taxes accruing to the Länder

Receipts from taxes accruing solely to the Länder were up by 5.8% on the year in October 2021. Taxes posting revenue gains included real property transfer tax (+7.2%), fire protection tax (+7.5%) and betting and lottery tax (+38.9%). The increase in receipts from the betting and lottery tax was mainly due to a substantial increase in revenue from the new online poker tax and virtual slots tax, which have been levied since 1 July 2021. Beer duty revenue was down by 16.7%, while inheritance tax revenue fell by 3.4%. In cumulative terms, cash receipts from taxes accruing solely to the Länder were up by a total of 11.3% on the year in the first 10 months of 2021.

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Borrowing and guarantees

Borrowing trends for the Federation in October 2021

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Borrowing trends for the Federation (budget and special funds, excluding loan financing) in October 2021

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Borrowing trends for the Federation (loan financing) in October 2021

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Guarantees

Authorised amount

Amount allocated as of
30 September 2021

Amount allocated as of
30 September 2020

in €bn

Export credit guarantees

155.0

126.9

125.6

Loans to foreign debtors, foreign direct investment, EIB loans

75.0

35.7

40.6

Financial cooperation projects

35.0

31.9

28.6

Food stockpiling

0.7

0.0

0.0

Domestic guarantees

430.0

312.3

273.2

International financial institutions

110.0

68.6

68.6

Treuhandanstalt successor organisations

1.0

1.0

1.0

Interest compensation guarantees

15.0

15.0

15.0

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Calendar

Publication schedule¹ of the monthly reports

December 2021 issue

November 2021

21 December 2021

January 2022 issue

December 2021

28 January 2022

February 2022 issue

January 2022

22 February 2022

March 2022 issue

February 2022

22 March 2022

April 2022 issue

March 2022

22 April 2022

May 2022 issue

April 2022

20 May 2022

June 2022 issue

May 2022

21 June 2022

July 2022 issue

June 2022

21 July 2022

August 2022 issue

July 2022

19 August 2022

September 2022 issue

August 2022

22 September 2022

October 2022 issue

September 2022

20 October 2022

November 2022 issue

October 2022

22 November 2022

December 2022 issue

November 2022

22 December 2022

¹ In accordance with the IMF’s Special Data Dissemination Standard Plus (SDDS Plus); see http://dsbb.imf.org

Source: Federal Ministry of Finance

Monthly report

Reporting period

Publication date

Key dates on the fiscal and economic policy agenda
6–7 December 2021

Eurogroup and ECOFIN Council meetings in Brussels

17–18 January 2022

Eurogroup and ECOFIN Council meetings in Brussels

25–26 February 2022

Eurogroup and informal ECOFIN meetings in Paris

Due to the coronavirus pandemic, dates and the format of meetings will be specified at short notice prior to the respective meetings.