Federal budget trends up to and including January 2024

The 2024 federal budget was adopted by the German Bundestag on 2 February 2024. Until the 2024 budget was promulgated in the Federal Law Gazette on 12 February 2024, the German government was working on the basis of an interim budget, based primarily on Article 111 of the Basic Law (Grundgesetz). The target values presented in the following tables are based on the 2024 Budget Act (Haushaltsgesetz 2024), which was promulgated in the Federal Law Gazette 2024 part 1 no 38.

Revenue

Federal revenue (excluding seigniorage, withdrawal from reserves and revenue from loans) totalled approximately €26.9bn in January 2024, up by 10.8% (about €2.6bn) on the year. Tax receipts increased by 7.6% (roughly €1.7bn) on the year. For further information about tax revenues, please refer to the article “Tax revenues in January 2024” [in German only] in the current issue of the monthly report.

The category of “other income” totalled €2.7bn in January 2024, a year-on-year gain of 51.4% (about €0.9bn). This is partly due to the fact that, since the beginning of the year, revenue from the allocations of spectrum for mobile communications (which totalled €0.4bn in January 2024) have flowed into the federal budget rather than the special fund for digital infrastructure, as in previous years.

Expenditure

In January 2024, federal expenditure totalled €46.4bn, down by 11.7% (€6.1bn) on the year. A breakdown by economic category shows that the decrease in expenditure was caused by lower investment spending, which was down by 76.5% (€7.6bn) on the year. The enormous decline in investment spending was mainly due to a special factor in 2023. 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. No such loan was made in 2024. After adjusting for this effect, investment spending fell by €1.3bn (35.1%) on the year. This outcome can mainly be attributed to the fact that no liquidity assistance has been provided to the Federal Employment Agency so far in 2024. Fixed asset investment was about 7.3% lower than in the same month last year.

Consumption spending increased on the year by 3.4% (€1.4bn). Human resources spending and interest spending both rose by €0.2bn on the year, and ongoing grants and subsidies were up by €1.1bn in year-on-year terms. Spending on efforts to enhance security, defence and stability in partner countries totalled €0.9bn in January 2024, an increase of €0.8bn compared with the same month last year. Federal subsidies to the general pension insurance system and spending on citizen’s benefit both increased by €0.4bn on the year. In contrast, spending on the government’s lump-sum contribution to the long-term care insurance system and federal payments to the health fund to cover pandemic-related costs each fell, by €0.9bn and €0.3bn respectively.

Net lending/borrowing

The federal budget recorded a deficit of €19.5bn in January 2024.

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 this 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. This is especially true at the start of the year. In 2024, this effect was exacerbated due to the interim budget that was in force during the first few weeks of the year.

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Tax revenue in January 2024

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was up by almost 6% on the year in January 2024 (see the table “2024 trends in tax revenue (excluding local authority taxes)”). Joint taxes, which account for the largest share of tax revenue, posted a year-on-year gain of almost 7%. Very strong revenue growth was observed for final withholding tax on interest and capital gains, corporation tax and non-assessed taxes on earnings. Receipts from value added taxes posted moderate growth, while receipts from wages tax and assessed income tax stagnated (see further details on specific taxes below).

Revenue from taxes accruing to the Federation was up by almost 7% on the year in January. Almost all the major federal taxes posted revenue gains, which in some cases were considerable. It is not possible to draw conclusions about trends for the rest of the year based merely on the January results. For example, January is the month when energy duty (the federal tax with the highest revenue) posts the lowest receipts. In the case of solidarity surcharge, the increase in yield is largely the result of strong revenue growth from final withholding tax on interest and capital gains, non-assessed taxes on earnings, and corporation tax.

Receipts from taxes accruing to the Länder fell by about 8% on the year in January. This decline continued to be driven mainly by the trend in revenue from real property transfer tax, which was down by about 18% on the year. There are signs that monthly revenue from this tax is stabilising at a level of between €0.9bn and €1bn. The decline in revenue from real property transfer tax was partially offset by a year-on-year increase in receipts from inheritance tax, which rose by more than 9%. Revenue from inheritance tax often fluctuates significantly in year-on-year terms.

Apportionment of tax revenue among the different levels of government

The Federation’s take from joint taxes grew by almost 6% on the year in January 2024. In general, revenue trends for the Federation in January were in line with the outcomes for individual joint taxes as described above, with the exception of value added taxes, where the Federation’s take increased by just under 1%, despite growth of almost 3% in VAT revenue overall. This was due to the fixed payments that are transferred from the Federation’s share of VAT revenue to the Länder in accordance with the Fiscal Equalisation Act (Finanzausgleichsgesetz). For details, see the table “Apportionment of VAT revenue in January 2024” below. These payments were higher in January 2024 than in the same period last year. Conversely, this led to a larger year-on-year increase in the revenue from joint taxes that was allocated to the Länder in January 2024, compared with total revenue from joint taxes.

The public transport subsidies that the Federation pays to the Länder were up by almost 17% on the year in January. The increase was largely the result of monthly payments to support the Länder in implementing the “Deutschlandticket” (“Germany ticket”) project, which was launched in the middle of 2023. The rest of the increase was due to the dynamic adjustment of public transport subsidies, which are raised by 3% each year as set out in law. In contrast, supplementary federal grants to the Länder fell by about 5% on the year in January 2024. Transfers of own resources to the EU – which are financed from the Federation’s tax revenues – declined noticeably on the year. After accounting for the apportionment of VAT revenue and supplementary federal grants to the Länder, the Federation’s overall tax revenue in January 2024 recorded a gain of around 8% on the year. In the case of the Länder, the decline in receipts from taxes accruing to the Länder had a moderating impact on the general revenue trend, which rose by around 6% overall. Local authorities’ take from joint taxes was up by about 5% on the year in January.

Apportionment of VAT revenue in January 2024

In January 2024, 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 remained largely unchanged on the year in January 2024. The German labour market remains robust despite the challenging macroeconomic environment. Employment levels have risen somewhat on the year, giving a slight boost to wages tax revenue. However, this effect is likely to have been moderated by the fact that short-time work has also increased slightly in year-on-year terms. The effective wage increases in recent months are probably largely due to special payments to offset the impact of inflation, which are exempt from tax and therefore do not have an impact on tax revenue. The other effects of higher gross wages are offset by the impact of the tax rate reductions that were implemented with the Inflation Compensation Act (Inflationsausgleichsgesetz) with the aim of offsetting bracket creep. Child benefit payments – which are financed from wages tax receipts – remained almost constant, with the result that cash receipts from wages tax also stagnated.

Taxes on earnings

The January 2024 revenue figures for assessed income tax and corporation tax were determined by the results of the revenue administration’s assessment activities. Receipts from corporation tax were up by roughly 50% on the year in January. In this context, the assessment of tax cases from 2022 – particularly in connection with audits – led to higher back payments and retroactive prepayments compared with January 2023. Receipts from assessed income tax remained virtually unchanged on the year in January 2024. With this tax, the levels of back payments and refunds resulting from assessment activities both increased by similar amounts, so that on balance there was no change.

Payments of research allowance financed from receipts from corporation tax and assessed income tax almost doubled on the year for both tax types. However, the level of payments is much lower in the case of assessed income tax than for corporation tax.

Regarding final withholding tax on interest and capital gains, the strong year-on-year revenue growth of recent months continued, reaching a new peak of 212% in January 2024. A significant portion of interest payments were made in relation to fixed-interest investment products with a due date of 31 December. This effect, combined with a strong increase in interest levels as a result of much higher inflation and the related tightening of monetary policy, led to the above-mentioned revenue growth in January 2024. The taxation of interest income not only results in a significant increase in receipts from final withholding tax on interest and capital gains, but also helps to balance out the revenue fluctuations associated with the taxation of capital gains. These fluctuations are probably having a smaller impact on the overall result at present, because the share of taxes on interest income in relation to total revenue has likely increased very sharply recently. The yield from non-assessed taxes on earnings was also up significantly on the year in January 2024, rising by about 40%. However, it is not yet possible to draw conclusions from this result regarding future trends, especially because this outcome could also be related to differences in the timing of dividend payments.

Value added taxes

Revenue from value added taxes was up by about 3% on the year in January 2024. This revenue trend continues to be roughly in line with recent rates of consumer price inflation, suggesting a subdued consumption trend towards the end of 2023 (with value added taxes, there is usually a lag of two months between the time when the tax becomes chargeable and the time when the revenue is recorded). The trend in imports continues to partially influence the trend in import VAT revenue as a proportion of total VAT revenue. Nominal imports fell by about 12% on the year around the end of 2023 (with import prices declining by more than 8%), which explains a large part of the 19% year-on-year drop in import VAT revenue that was recorded in January 2024. Lower revenues from import VAT lead to a corresponding decline in deductions of input VAT. This in turn causes a disproportionate rise in revenue from domestic VAT. The latter increased by more than 12% on the year in January 2024, a growth rate that significantly exceeded overall VAT revenue growth.

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Borrowing and guarantees

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