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22 June 2023

Overview of federal budgetary and financial data up to and including May 2023

Translated extracts from the Federal Ministry of Finance’s June 2023 monthly report

Federal budget trends up to and including May 2023

Table: Trends in the federal budget

Expenditure (€bn)²

480.7

476.3

189.8

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

 

 

-0.7

Revenue (€bn)³

364.7

389.9

142.0

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

 

 

+2.3

Tax revenue (€bn)

337.2

358.1

131.2

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

 

 

+1.4

Balance of pass-through funds (€bn)

0.0

0.0

0.0

Fiscal balance (€bn)

-116.0

-86.4

-47.8

Financing/use of surplus:

116.0

86.4

47.8

Cash resources (€bn)

-

-

212.8

Seigniorage (€bn)

0.1

0.2

0.1

Movements in reserves⁴ (€bn)

0.5

40.5

0.0

Net borrowing⁵ (€bn)

115.4

45.6

-165.1

Any discrepancies in totals are due to rounding.
¹ As per accounts.
² 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.
³ 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.
⁴ Negative values denote accumulation of reserves.
⁵ (-) debt repayment; (+) borrowing
Source: Federal Ministry of Finance

Actual 2022

2023 target

Actual¹
January to May 2023

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Revenue

Federal revenue for the period from January to May 2023 totalled €142.0bn, up by 2.3% (€3.2bn) on the year. Federal tax revenue stood at €131.2bn and was thus 1.4% (€1.9bn) higher than in the same period of 2022. Further information on tax revenues is provided in the article “Tax revenues and economic environment in May 2023” [in German only] in the current edition of the monthly report.

The category of “other income” recorded a gain of 14.1% (€1.3bn) on the year in the January–May period. Within this category, interest revenue from the Federation’s cash management system was up by €0.4bn, while revenue from fees and other income from guarantees increased by €0.2bn. In addition, Germany received €0.6bn in disaster relief from the EU Solidarity Fund to help repair the damage caused by the severe floods in summer 2021.

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Expenditure

Federal expenditure in the first five months of 2023 totalled €189.8bn, down by 0.7% (€1.4bn) on the year. Broken down by economic category, investment spending was up by 36.3% (€4.8bn), while consumption spending was down by 3.5% (€6.2bn) on the year.

As in previous months, the significant rise in investment spending is due to a special factor: a €6.3bn loan that was granted to the IMF’s Resilience and Sustainability Trust in January 2023 was recorded as an investment item, as required under budget law. After adjusting for this effect, investment spending fell by 11.5% (€1.5bn) on the year. This can be attributed to a decline in liquidity assistance to the Federal Employment Agency, which was down by roughly €2.8bn on the year. Fixed asset investment was €0.2bn lower than in the same period last year.

In the category of consumption spending, contrasting trends could be observed: due to the general increase in interest rates, interest expenditure rose sharply, by €14.9bn. In contrast, ongoing grants and subsidies declined by 15.8% (€22.3bn) on the year, mainly because much less funding had to be made available to combat the adverse effects of the Covid-19 pandemic than in 2022. For example, federal payments to the health fund to cover pandemic-related costs totalled €1.2bn, a decline of €16.0bn. Pandemic-related assistance to businesses totalled €0.3bn, down by €6.2bn on the year. Pandemic-related compensation payments under section 21 of the Hospital Financing Act (Krankenhausfinanzierungsgesetz) amounted to €0.5m in the first five months of 2023, €4.1bn less than in the same period last year. The decline in ongoing grants and subsidies was offset somewhat by a €2.5bn increase in spending on the citizen’s benefit and a €1.0bn increase in spending on housing benefit.

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Fiscal balance

The federal budget recorded a deficit of €47.8bn for the January–May 2023 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.

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

Tabelle vergrößern

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Tax revenue in May 2023

2023 trends in tax revenue (excluding local authority taxes)

Tabelle vergrößern

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Tax revenue trends

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Total tax revenue

Overall tax revenue (excluding local authority taxes) was up by 8.5% on the year in May 2023 (see the table “2023 trends in tax revenue (excluding local authority taxes)”). In particular, the yield from joint taxes rose by 11.5%. However, this year-on-year increase is significantly overstated due to a special effect that reduced last year’s baseline for import VAT revenue (see below). After adjusting the May 2022 baseline to account for the estimated impact of this special effect, the total tax revenue increase amounts to only about 1½% (or about 3% in the case of joint taxes). Revenue trends continue to be noticeably impacted by tax relief measures, especially the efforts to prevent bracket creep contained in the Inflation Compensation Act (Inflationsausgleichsgesetz).

Receipts from taxes accruing solely to the Federation increased by more than 4%. Key contributing factors here included higher revenues from tobacco duty, energy duty, insurance tax and the solidarity surcharge. The decline in receipts from taxes accruing to the Länder, which has persisted since the second half of 2022, continued in May 2023, with a year-on-year decline of about 26%. Revenue from real property transfer tax fell by about 33%, while the take from inheritance tax was down by about 14%.

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Apportionment of tax revenue among the different levels of government

Thanks to the substantial rise in receipts from joint taxes, especially value added taxes, the Federation and the Länder recorded significant revenue gains. The Federation’s tax receipts (after accounting for supplementary federal grants that, under the fiscal equalisation system, are paid by the Federation to Länder with below-average capacity) rose by 9% on the year in May 2023. Due to the decline in fixed payments from the Federation to the Länder in accordance with section 1 of the Fiscal Equalisation Act (Finanzausgleichsgesetz), the Federation’s take from value added taxes increased disproportionally (see the table “Apportionment of VAT revenue in May 2023”). At the same time, however, a marked increase in the Federation’s public transport subsidies to the Länder to more than €2.4bn significantly cut into the Federation’s overall revenue.

Thanks to the higher public transport subsidies, the Länder recorded a substantial gain in their tax receipts, despite the considerable decline in revenue from Länder taxes as well as the lower fixed payments of VAT revenues allocated to the Länder. In contrast, local authorities’ take from their share of joint taxes fell slightly, by nearly 1% on the year.

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Apportionment of VAT revenue in May 2023

In May 2023, revenue from value added taxes was distributed as follows among the Federation, Länder and local authorities:

Share of total VAT revenue (€25,870m) as per section 1 of the Fiscal Equalisation Act

52.81398351%

45.19007254%

1.99594395%

€13,683m

€11,691m

€516m

Plus (+) / minus (-): 1/12 of the fixed payments as per section 1 (2) and (2a) of the Fiscal Equalisation Act (€9,659m)

-€805m

+€604m

+€200m

Share after accounting for the fixed payments:

49.70%

47.53%

2.77%

€12,858m

€12,296m

€716m

Any discrepancies in totals are due to rounding.

 

Federation

Länder

Local authorities

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Further details on specific taxes

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Wages tax

Gross revenue from wages tax recorded only a slight year-on-year increase of less than 1% in May 2023. This can be attributed to extensive tax relief measures, particularly those set out in the Inflation Compensation Act (Inflationsausgleichsgesetz) and the 2022 Annual Tax Act (Jahressteuergesetz 2022). Without these relief measures, it is estimated that gross revenue from wages tax would have risen by roughly 5% in May 2023. The Inflation Compensation Act also increased the child benefit as of 1 January 2023. As a result, child benefit payments – which are financed from gross wages tax revenue – recorded a substantial year-on-year increase of more than 15% in May 2023. In addition, the vast majority of payments of retirement savings subsidy for 2022 were disbursed in May 2023. The retirement savings subsidy is also financed from gross wages tax receipts. The amount disbursed was almost 17% lower than in May 2022. On balance, cash receipts from wages tax declined slightly and were nearly at the same level as in May 2022.

Wages tax revenue is being buoyed by the ongoing strong performance of the labour market, which remains robust despite the current economic challenges. Employment continued to rise in April from an already high level, albeit only slightly and less markedly than in previous months. Nevertheless, employment levels are noticeably higher than in the same month of 2022. According to the latest projections, short-time work levels showed a sideways movement in March 2023. Current figures on the number of people starting short-time work suggest that declines in short-time work levels in subsequent months are unlikely. This means that the large year-on-year changes seen in the early months of 2023 – when sharp declines from a high level were recorded – are likely to flatten out. Short-time work has a negative impact on wages tax revenue, but this is likely to be relatively minor by now, and not much different from the impact it had a year ago.

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Taxes on earnings

As in the previous months, receipts from assessed income tax and corporation tax in May 2023 were primarily derived from assessment activities for the years up to 2022. In the case of assessed income tax, retroactive prepayments for pending assessments were down on the year, while back-payments for past periods rose slightly. Refunds recorded a somewhat more marked rise. After accounting for research allowance, investment allowance and owner-occupied homes premium payments, all of which had a relatively small impact, net revenue from assessed income tax declined by nearly €0.8bn overall, to -€0.3bn.

For corporation tax, retroactive prepayments were up sharply, and back-payments also increased significantly in year-on-year terms, while the volume of refunds declined. Here too, the amounts deducted for research allowance and investment allowance payments were relatively small. On balance, net revenue from corporation tax grew by €0.2bn, to €0.9bn.

Receipts from non-assessed taxes on earnings, which are mainly derived from the taxation of dividends, increased by more than 17%. May is a high-revenue month for this tax, because several large corporations have their annual general meetings in April, and tax on the resulting dividend payments falls due in May.

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Value added taxes

Revenue from value added taxes surged by nearly 22% on the year in May 2023. This is due primarily to a special effect relating to import VAT: in May 2022, there was a substantial shift in import VAT revenue into June, because the due date for paying import VAT (the 26th of each month) left only a few working days to process payments and post the revenue to government accounts. This greatly reduced the 2022 baseline, which explains the 93% increase in import VAT revenue recorded for May 2023. Without the estimated impact of this effect, there would have been no rise in receipts from import VAT, but rather a decline of approximately 3.5%.  This generally reflects the decline in nominal imports of goods since mid-2022, which is partly due to price-related factors. Imports fell by nearly 2% on the year in April 2023. Without the special effect, total receipts from value added taxes would have increased by nearly 4% on the year.

Revenue from (domestic) VAT rose by nearly 7%, despite the temporary reduction in VAT rates on gas and district heating. However, cumulative (domestic) VAT revenue over the January–May period was still down by nearly 2% on the year. In addition to changes in the law affecting VAT on gas and district heating, this also reflects the weak trend in real consumption (see above). For example, nominal retail sales (the decisive figure for VAT revenue) rose by less than 4% on the year, meaning that the rate of change was below the rate of inflation.

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Borrowing and guarantees

Borrowing trends for the Federation in May 2023

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Borrowing trends for the Federation (budget and special funds, excluding loan financing) in May 2023

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Guarantees

  

Authorised amount

Amount allocated as of
31 March 2023

Amount allocated as of
31 March 2022

in €bn

Export credit guarantees

150.0

115.3

126.6

Loans to foreign debtors, foreign direct investment, EIB loans

60.0

40.2

35.4

Financial cooperation projects

38.8

32.4

30.8

Food stockpiling

0.7

0.0

0.0

Domestic guarantees

650.0

346.8

282.1

International financial institutions

85.0

75.5

75.5

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 and fiscal data

July 2023 issue

June 2023

20 July 2023

August 2023 issue

July 2023

24 August 2023

September 2023 issue

August 2023

21 September 2023

October 2023 issue

September 2023

20 October 2023

November 2023 issue

October 2023

21 November 2023

December 2023 issue

November 2023

21 December 2023

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
13–14 July 2023

Eurogroup and ECOFIN Council meetings in Brussels, Belgium

17–18 July 2023

Meeting of G20 finance ministers and central bank governors in Gandhinagar, India

15–16 September 2023

Eurogroup and informal ECOFIN meetings in Santiago de Compostela, Spain