Federal budget trends up to and including February 2024

Revenue

Federal revenue (excluding seigniorage, withdrawals from reserves and revenue from loans) totalled €60.3bn in the first two months of 2024, up by 15.0% (€7.9bn) on the year. Tax revenues were up by 9.4% (€4.6bn) on the year. For further information about tax revenues, please refer to the article “Tax revenues in February 2024” [in German only] in the current issue of the monthly report.

The category of “other income” totalled €6.7bn in the first two months of 2024, a year-on-year gain of 94.8% (€3.3bn). Receipts from the distance-based commercial vehicle toll increased by €0.8bn on the year, mainly due to Germany’s recent addition of a CO2 component to the toll. In addition, since the beginning of the year, revenue from allocations of spectrum for mobile communications (which totalled €0.4bn in the first two months of 2024) have flowed into the federal budget rather than into the special fund for digital infrastructure as in previous years.

Expenditure

Federal expenditure in the first two months of 2024 totalled €80.2bn, down by 3.5% (€2.9bn) on the year. A breakdown by economic category shows that the decrease in expenditure was caused by lower investment spending, which was down by 62.7% (€6.9bn) on the year. The enormous decline in investment spending was mainly due to a special factor in 2023: specifically, 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 was down by €0.6bn (13.2%) on the year. This outcome can be attributed mainly to the fact that no liquidity assistance has been provided to the Federal Employment Agency so far in 2024. Fixed asset investment was down by 2.9% on the year.

Consumption spending rose by 5.6% (€4.0bn) on the year. Interest expenditure was up by €0.6bn on the year, and ongoing grants and subsidies climbed by €3.3bn on the year. Expenditure to enhance security, defence and stability in partner countries totalled €1.2bn in the first two months of 2024, an increase of €1.0bn compared with the same period last year. Federal subsidies to the general pension insurance system rose by €1.1bn on the year, and spending on citizen’s benefit grew by €0.7bn on the year. Furthermore, repayments of pandemic-related immediate assistance loans for small businesses and self-employed individuals, which last year were accounted for in a manner that lowered spending figures for ongoing grants and subsidies by €1.5bn in the first two months of 2023, are now recorded in the accounts as revenue; no such revenue was posted in the first two months of 2024. In contrast, federal payments to the health fund to cover pandemic-related costs declined by €0.6bn on the year in the first two months of 2024. No money was budgeted this year for federal lump-sum contributions to the long-term care insurance system; in the first two months of 2024, this led to a €0.9bn year-on-year reduction in federal spending when compared with the same period last year.

Fiscal balance

The federal budget recorded a deficit of €19.9bn for the January–February 2024 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 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, and even more so in 2024 due to the interim budget that was in effect during the first several weeks of the year.

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Tax revenue in February 2024

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was up by approximately 6% on the year in February 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 about 5% in the month of February. Revenue trends varied for the individual types of joint tax. Assessed income tax and final withholding tax on interest and capital gains recorded significant revenue growth. Wages tax receipts also increased, but at a much more moderate pace. In contrast, the yields from corporation tax and from non-assessed taxes on earnings were down on the year. Revenue from value added taxes recorded a year-on-year increase, but only because of a very low baseline figure for import VAT in February 2023 that was caused by an accounting-related effect (see further details on specific taxes below). Adjusting for this effect would result in weak outcomes both for value added taxes and for joint taxes as a whole.

Revenue from taxes accruing solely to the Federation was up markedly by roughly 9% on the year in February. Of these taxes, insurance tax accounted for the largest share of revenue in February 2024, as in previous years. February is by far the highest-revenue month for insurance tax, accounting for roughly one third of the total annual yield for this tax. Insurance tax receipts surged by about 7½% in February 2024, an outcome that was most likely driven by higher motor vehicle insurance premiums. Other high-revenue federal taxes posting gains in February included tobacco duty, energy duty and motor vehicle tax. Receipts from solidarity surcharge also grew at a moderate pace. In contrast, receipts from electricity duty were down substantially on the year. This decline was due to the tax relief provided under the German government’s recently adopted “electricity price package”, which manifested itself in the cash figures for electricity duty for the first time in February 2024 (see below).

In February, revenue from taxes accruing solely to the Länder recorded a year-on-year gain for the first time since May 2022, up by just under 8%. This outcome was driven by receipts from real property transfer tax, which grew by about 5% in February, the first year-on-year increase for this tax since mid-2022. This is a continued indication that revenue from real property transfer tax is stabilising at a significantly lower level than in previous years, with monthly receipts now totalling approximately €1bn. However, based on current indicators from the real estate market and the construction sector, February’s slight gain does not signal a sustained upswing. Inheritance tax – the other high-revenue Länder tax in addition to real property transfer tax – also recorded a year-on-year revenue gain in February.

Apportionment of tax revenue among the different levels of government

The Federation’s take from joint taxes grew by just under 4% on the year in February 2024. This was basically in line with the overall revenue trends for the individual joint taxes, as described above. VAT was the only joint tax where the Federation’s revenue gains lagged behind the pace of overall revenue growth. 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). These fixed payments were higher on the year in February 2024 (for details, see the table “Apportionment of VAT revenue in February 2024” below). Accordingly, Länder VAT revenue in February grew at a higher rate than overall VAT revenue.

The Federation’s public transport subsidies to the Länder rose by nearly 17% on the year in February. This increase was mainly due to monthly payments made by the Federation to help the Länder implement the Deutschlandticket, a public transport ticket that is valid throughout Germany. Another contributing factor was the dynamic adjustment of the public transport subsidies, which are raised by 3% per year in accordance with the Local Public Transport Act (Regionalisierungsgesetz). In contrast, supplementary federal grants to the Länder were about 5% lower on the year in February. Transfers of own resources to the EU – which are financed from the Federation’s tax revenues – were also down sharply on the year in February. After accounting for the apportionment of VAT revenue and supplementary federal grants to the Länder, the Federation’s overall tax revenue in February 2024 (including receipts from purely federal taxes) was up by nearly 10% on the year. Länder tax receipts were up by roughly 6½% on the year in February after accounting for the apportionment of VAT revenue and supplementary federal grants. Local authorities’ take from their share of joint taxes was down by just under 9% on the year.

Apportionment of VAT revenue in February 2024

In February 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 wages tax receipts were up by roughly 3% on the year in February 2024. This rate of increase lagged behind the most recent figures for nominal wages, which grew by over 5% in the fourth quarter of 2023 according to the Federal Statistical Office’s latest data. This is due in part to the fact that the second stage of tax rate adjustments under the Inflation Compensation Act (Inflationsausgleichsgesetz) – which are intended to offset bracket creep –took effect at the beginning of 2024. It is likely that payments of tax-exempt inflation compensation bonuses have also continued to contribute to higher wages. Some wage agreements for 2024 provide for wage increases during the course of the year, which is likely to accelerate the pace of wages tax revenue growth as the year progresses. Recent labour market trends have generally had a neutral impact on wages tax figures: both employment and short-time work have risen only minimally in year-on-year terms. Child benefit payments – which are financed from wages tax receipts – were basically constant on the year in February, with benefit rates remaining unchanged. As a result, cash receipts from wages tax grew at a very similar rate as gross receipts.

Taxes on earnings

Cash receipts from assessed income tax and corporation tax in February 2024 were driven largely by revenue administration assessments for previous periods. In the case of assessed income tax, February saw a year-on-year increase in (a) back-payments and refunds resulting from assessments and (b) retroactive prepayments. On balance, cash receipts from assessed income tax in February were up sharply on the year by nearly 38%. Research allowance payments financed from assessed income tax receipts nearly tripled on the year, but the total amount had only a negligible impact on net results.

In the case of corporation tax, assessments of tax cases from previous years led to a significantly higher year-on-year increase in refunds than in back-payments during February. Retroactive prepayments resulting from assessments declined on the year. In addition, research allowance payments financed from corporation tax receipts play a more significant role than in the case of assessed income tax. These payments more than doubled on the year in February. On balance, cash receipts from corporation tax were down sharply by about 52% in February. February’s results for both assessed income tax and corporation tax provide little indication of how revenue trends will develop over the course of the year. The first indication for annual trends will likely come in March, when the first prepayments for 2024 are due.

Continuing the pattern of recent months, receipts from final withholding tax on interest and capital gains posted a huge year-on-year gain of 262% in February. This result was probably driven once again by the significant increase in interest rates. An associated factor is the volume of household bank deposits with fixed terms of up to two years, which has grown significantly over the past year and has thereby likely amplified the increase in tax revenue resulting from higher interest rates. In contrast, receipts from the taxation of capital gains are most likely having a smaller impact on revenue trends at this time. Non assessed taxes on earnings were down sharply by 65% on the year in February; however, the baseline revenue figure from February 2023 was significantly inflated due to a special dividend payout. The months that account for the highest amounts of revenue from non-assessed taxes on earnings, and that therefore have the largest impact on annual results, tend to fall in the middle of the year.

Value added taxes

Revenue from value added taxes was up by approximately 7% on the year in February 2024. This increase was solely due to a base effect in connection with import VAT, however. Specifically, in 2023, some revenue from import VAT was shifted from February into March, because the due date for paying import VAT (the 26th of each month) gave the federal revenue administration only a few working days in February to process payments. As a result, the baseline figure from February 2023 was artificially low, which explains the roughly 87% revenue surge that was recorded for February 2024. Absent this one-off effect, import VAT receipts would have posted an appreciable decline. This is in line with trends in nominal imports, which were down by about 8% on the year in the most recent reporting period, partly due to decreasing prices.

Without the one-off effect that boosted the yield from import VAT, overall revenue from value added taxes would likewise have been down in February, because receipts from domestic VAT fell by 3% on the year. The decline in (domestic) VAT – despite the fact that input tax deductions in connection with import VAT were likely down on the year –was probably due, among other things, to the relatively weak Christmas shopping season as indicated by retail sales figures. In the case of (domestic) VAT, it generally takes two months for accrued revenue to show up in cash statistics.

Electricity duty

The German government’s electricity price package reduces the price of electricity for manufacturing companies to the lowest rate permitted by the European Union: 0.05 cents per kilowatt hour (this replaces the previous price of over 1.5 cents). This lower price was reflected in year-on-year comparisons of electricity duty receipts for the first time in February, because payments and prepayments of electricity duty for January 2024 (the first month affected by the price reduction) were not due until February. As a result, electricity duty receipts were down by roughly 16½% on the year in February.

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Borrowing and guarantees

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