Federal budget trends up to and including August 2023

Revenue

In the period from January to August 2023, federal revenue totalled €242.9bn, up by 6.6% (€15.1bn) on the year. Tax revenue totalled €224.6bn, a gain of 5.9% (€12.5bn) on the year. Further information on tax revenues is provided in the article “Tax revenues in August 2023 and economic environment” (in German only) in the September 2023 edition of the monthly report.

The category of “other income” recorded an increase of 16.5% (€2.6bn) on the year in the first eight months of 2023. Within this category, revenue from fees and other income from guarantees rose by €0.9bn, and interest revenue from the Federation’s cash management system was up by €0.8bn. 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.

Expenditure

In the period from January to August 2023, federal expenditure totalled €301.9bn, down by 3.8% (€12.1bn) on the year. Broken down by economic category, investment spending was up by 29.8% (€6.6bn), while consumption spending was down by 6.4% (€18.7bn) on the year.

As in previous months, the significant increase 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 remained at roughly the same level as last year (up by 1.5%, or €0.3bn). There were several contrasting trends overall. On the one hand, liquidity assistance provided to the Federal Employment Agency declined by €2.5bn on the year in the first eight months of 2023, and this year’s loan to the Poverty Reduction and Growth Trust is €0.5bn less than in 2022. In addition, in the first eight months of 2022, liquidity assistance totalling €1.0bn was disbursed to the long-term care insurance compensation fund. Fixed asset investment was also down slightly on the year, by €0.2bn. In contrast, “investment grants to other areas” increased by €3.4bn on the year. These grants are distributed among a wide variety of federal budget items: key areas where expenditures increased included grants for the operation of storage and regasification facilities (up by €0.5bn), grants for investments in Autobahn des Bundes GmbH (up by €0.5bn) and grants to cover construction costs for maintaining the federal rail infrastructure (up by €0.4bn). In addition, a €1.0bn loan extending beyond the current year was granted to the health fund in August 2023.

Consumption spending likewise showed contrasting trends. Due to the general increase in interest rates, interest expenditure rose sharply, by €17.5bn. In contrast, ongoing grants and subsidies declined by 17.1% (€38.5bn) 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 €1.3bn, a decline of €23.0bn on the year. Pandemic-related assistance to businesses totalled €0.4bn, down by €8.8bn on the year. Grants for the centralised procurement of vaccines to fight SARS-CoV-2 fell by €4.9bn on the year to €0.9bn. Pandemic-related compensation payments under section 21 of the Hospital Financing Act (Krankenhausfinanzierungsgesetz) were down by €4.1bn on the year. In addition, €5.9bn in federal budget funds were allocated to the Climate and Transformation Fund in 2022, and no such allocation is being made in 2023. The decline in ongoing grants and subsidies was offset somewhat by a €2.7bn increase in spending on citizen’s benefit, a €1.4bn increase in the federal subsidy to the general pension insurance system and a €1.3bn increase in the supplementary federal subsidy to the health fund. In addition, expenditure to enhance security, defence and stability in partner countries rose by €2.4bn.

Fiscal balance

The federal budget recorded a deficit of €59.0bn for the January–August 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.

to the top

Tax revenue in August 2023

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was up appreciably by about 8½% on the year in August 2023 (see the table “2023 trends in tax revenue (excluding local authority taxes)”). Revenue from joint taxes, which grew by nearly 8% on the year, was the main factor driving this increase. Wages tax receipts posted a year-on-year gain of nearly 5%; as in July, however, the measures contained in the 2022 Tax Relief Act (Steuerentlastungsgesetz 2022) that lowered last year’s baseline figure played a role here (see the additional details on wages tax below). VAT receipts – which were up by over 7% on the year in August – also boosted the overall yield from joint taxes. In addition, revenue from taxes on income from capital – both (a) withholding tax on interest and capital gains and (b) non-assessed taxes on earnings – posted high rates of year-on-year growth. In August, revenue figures for assessed income tax and corporation tax were driven by revenue administration assessments and the resulting back-payments and refunds. The yield from assessed income tax was down on the year, while receipts from corporation tax recorded a gain.

Revenue from taxes accruing solely to the Federation surged by nearly 21% on the year in August. This was mainly due to a base effect that impacted revenue figures for energy duty (see below). Adjusting for this base effect would result in a growth rate of about 4%. Receipts from the solidarity surcharge were up substantially on the year by nearly 13% in August, thanks especially to strong growth in revenue from capital income tax and corporation tax – two of the taxes that make up its tax base and that (unlike wages tax, for example) are still fully subject to the surcharge.

Revenue from taxes accruing solely to the Länder remained on a downward trend in August, posting a year-on-year drop of nearly 11% that echoed the rates of decline in June and July. Receipts from real property transfer tax again fell sharply, although the rate of decline in August – nearly 22% – was not quite as high as in recent months. In contrast, the yield from inheritance tax climbed by roughly 8% on the year.

Apportionment of tax revenue among the different levels of government

The surge in receipts from joint taxes was mirrored in the sharp year-on-year growth in overall tax revenue recorded by the Federation and the Länder. The Federation’s overall tax receipts (after the apportionment of VAT revenue and the subtraction of supplementary federal grants) climbed by nearly 17% on the year in August. Overall tax revenue for the Länder rose by nearly 6% on the year. The discrepancy in growth rates between the Federation and the Länder was due mainly to the year-on-year increase in receipts from purely federal taxes and the year-on-year decline in receipts from purely Länder taxes. The Federation also benefited disproportionately from the increase in revenue from value added taxes. Federal subsidies to the Länder for public transport were higher on the year in August. Local authorities’ take from their share of joint taxes was up by roughly 5% on the year.

Apportionment of VAT revenue in August 2023

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

Further details on specific taxes

Wages tax

Gross revenue from wages tax was up by about 7½% on the year in August 2023. As was the case in July, the measures contained in the 2022 Tax Relief Act served to lower last year’s baseline figure. In 2022, refunds of wages tax for the first half of the year (due to retroactive increases in the basic personal allowance and the standard allowance for employees) had a negative impact on wages tax revenue, especially in July and August. At the same time, however, extensive tax relief measures in 2023 under the Inflation Reduction Act (Inflationsausgleichsgesetz) and the 2022 Annual Tax Act (Jahressteuergesetz 2022) continue to have a dampening effect on current wages tax receipts. On balance, these relief measures probably led to only a minor reduction in the growth rate for gross wages tax revenue in August 2023. Due to this year’s increase in child benefit (which is financed from wages tax revenue), net revenue from wages tax rose at a markedly lower rate (just under 5%) than gross revenue.

From a macroeconomic point of view, stable employment trends together with considerable growth in nominal wages are having a positive impact on wages tax revenue despite the headwinds facing the overall economy. However, this positive effect is being tempered by widespread payments of the tax-exempt inflation compensation bonus. Short-time work levels in July 2023 – the month that has the largest impact on wages tax revenue for August – are expected to have been roughly the same as in July 2022. This means that short-time work probably had no major effect on year-on-year changes in wages tax revenue.

Taxes on earnings

Receipts from assessed income tax and corporation tax in August 2023 were driven by revenue administration assessments for the year 2022. Revenues from these taxes can fluctuate significantly depending on the incoming volume of tax returns and the extent to which they have been processed by the tax administration, especially when larger tax cases are involved. Assessments following completed audits also play an important role in this connection.

In August, gross corporation tax receipts totalled about €320m. Research allowance and (relatively low) investment allowance payments are financed from this revenue; net corporation tax receipts in August totalled approximately €280m as a result.

Gross revenue from assessed income tax totalled approximately €1.9bn in August. After subtracting (a) refunds to employees assessed for income tax and (b) relatively small amounts of research allowance, investment allowance and owner-occupied homes premium payments, cash receipts from assessed income tax totalled roughly €220m.

In the case of revenue from non-assessed taxes on earnings, the downward trend from earlier in the year had already been reversed by July, and an additional year-on-year gain of nearly 28% was posted in August. In cumulative terms, revenue from non-assessed taxes on earnings was up by nearly 15% in the first eight months of 2023. This figure lines up closely with the expectations of the Working Party on Tax Revenue Estimates, which forecast roughly 13% growth in revenue from non-assessed taxes on earnings this year.

Revenue from final withholding tax on interest and capital gains was up by roughly 103% on the year in August. After posting year-on-year declines in the early months of 2023, receipts from this tax shifted into positive territory from April onwards. In the months from June to August, the yield from final withholding tax on interest and capital gains nearly doubled on the year and returned to the levels achieved in the same three months of 2021, the highest-revenue year ever recorded for this tax. It remains to be seen whether this trend will continue in the fourth quarter of 2023. Overall, this year’s figures attest to the volatility of revenue trends for this tax – a volatility which is most likely caused by revenue trends for taxes on proceeds from the sale of securities, and which adds to the difficulty of making accurate revenue forecasts.

Value added taxes

Revenue from value added taxes was up appreciably by over 7% on the year in August 2023. Import VAT was down by just under 10% on the year in line with the general downward trend in nominal imports of goods, which is partly due to price-related factors. Imports of goods were down by about 10% on the year in July, but this shifts to a gain of just over 1½% after adjusting for working days and seasonal factors. The downward trend in receipts from import VAT and the associated decline in deductions of input VAT are likely to have boosted the yield from (domestic) VAT, which climbed by nearly 15% on the year in August. Further boosts to VAT revenue from cyclical trends are not expected in the short term, however. In this context, nominal sales in both the retail and hospitality sectors (the relevant figure in determining VAT revenue) were up only slightly on the year in July, by just under 3%.

Energy duty

Receipts from energy duty were up by roughly 56% on the year in August. This sharp rate of increase was due mainly to a low baseline figure from 2022, which was caused largely by a temporary reduction in the energy duty rate on fuels in the three months from June to August last year. In the case of energy duty, it generally takes two months for accrued revenue to show up in cash statistics. This means that the temporary rate cut was not reflected in cash receipts until August 2022. Adjusting for this effect, energy duty would have posted estimated revenue growth of just over 3%.

to the top

Borrowing and guarantees

to the top

Calendar