Federal budget trends up to and including March 2024

Revenue

Federal revenue (excluding seigniorage, withdrawals from reserves and revenue from loans) in the period from January to March 2024 totalled €94.8bn, up by 7.2% (€6.4bn) on the year. Tax revenues were up by 3.1% (€2.6bn) on the year. Further information on tax revenues is provided in the article “Tax revenues and economic environment in March 2024” (in German only) in the current edition of the monthly report.

The category of “other revenue” totalled €9.2bn in the January–March period, a year-on-year gain of 70.5% (€3.8bn). Receipts from the distance-based commercial vehicle toll increased by €0.9bn 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 three months of 2024) has flowed into the federal budget rather than into the special fund for digital infrastructure as in previous years. Interest revenue from the Federation’s cash management system increased by €0.4bn on the year in the first quarter of 2024.

Expenditure

Federal expenditure in the first three months of 2024 totalled €113.2bn, down by 4.5% (€5.3bn) on the year. A breakdown by economic category shows that the decrease in expenditure was caused by lower investment spending, which was down by 54.7% (€7.5bn) 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 €1.2bn (16.5%) 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 7.0% on the year.

Consumption spending rose by 2.1% (€2.2bn) on the year. Operating expenditure and interest expenditure were both down on the year (by €0.7bn and €0.3bn respectively), while ongoing grants and subsidies climbed by €2.3bn. Spending on efforts to enhance security, defence and stability in partner countries totalled €2.0bn in the first quarter of 2024, an increase of €1.2bn on the year. These funds are being used primarily to support Ukraine. Federal subsidies to the general pension insurance system also rose by €1.2bn on the year, and spending on citizen’s benefit grew by €1.0bn 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 €1.7bn in the first three months of 2023, are now recorded in the accounts as revenue; no such revenue was posted in the first three months of 2024. In contrast, federal payments to the health fund to cover pandemic-related costs declined by €1.1bn on the year in the first three months of 2024. No money was budgeted this year for federal lump-sum contributions to the long-term care insurance system; in the first quarter 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 €18.4bn for the January–March 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 indicator

s 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 few weeks of the year.

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Tax revenue in March 2024

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was down by approximately 4½% on the year in March 2024 (see the table “2024 trends in tax revenue (excluding local authority taxes)”). Revenue from joint taxes and from federal and Länder taxes was down on the year. Joint taxes, which account for the largest share of tax revenue, posted a year-on-year decline of about 4% in March. Continuing the trend of recent months, withholding tax on interest and capital gains recorded significant revenue growth. Wages tax receipts also increased, but at a much more moderate pace. Receipts from assessed income tax and corporation tax, on the other hand, were down on the year in March 2024, the first month in the year when prepayments are due. Revenue from non-assessed taxes on earnings and value added taxes continued to record year-on-year declines in March 2024. In the case of value added taxes, this was because of a very strong baseline figure for import VAT in March 2023 caused by an accounting-related effect (see further details on specific taxes below).

Receipts from taxes accruing to the Federation recorded a significant drop of 12%, primarily due to a decline in yields from tobacco duty, which fell by 36% on the year. The strong revenue growth in February 2024 indicates a shift in revenue between the two months compared with the same period last year. On a cumulative basis, revenue from tobacco duty posted only a slight decline on the year in the first quarter of 2024. As was the case in February 2024, the German government’s electricity price package was primarily responsible for the significant decline in electricity duty receipts, which were down by approximately 11% in March. Among the other high-revenue federal taxes, receipts from insurance tax posted a sharp increase of around 11%, receipts from energy duty and the solidarity surcharge remained virtually unchanged on the year, while revenue from motor vehicle tax was down by 6%.

Receipts from taxes accruing to the Länder fell by about 12% on the year. Revenue from real property transfer tax was about 18% lower than in March 2023. However, receipts in March 2024 remained at the same level as in recent months, confirming that revenue from real property transfer tax is stabilising at a significantly lower level than in previous years, with monthly receipts totalling approximately €1bn. Receipts from inheritance tax – the other high-revenue Länder tax – posted a significant year-on-year decline of 15%.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) recorded a decline of almost 6% in March 2024. This mainly reflects the decline in receipts from purely federal taxes and from joint taxes. Due to a year-on-year increase in fixed payments to the Länder, the Federation’s share of revenue from value added taxes dropped even more sharply than overall VAT revenue. The fixed payments 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 March 2024” below. Accordingly, Länder VAT revenue in March 2024 did not decline as sharply as overall VAT revenue. Taking into account the drop in revenue from taxes accruing to the Länder, Länder tax receipts (after accounting for supplementary federal grants) were down by just over 3%.

The Federation’s public transport subsidies to the Länder rose by nearly 17% on the year in March 2024. 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 March.

Transfers of own resources to the EU – which are financed from the Federation’s tax revenues – were down sharply on the year.

Local authorities’ take from their share of joint taxes was up by just over 1% on the year.

Apportionment of VAT revenue in March 2024

In March 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 4% on the year March 2024. The fact that this increase is not higher, despite a robust labour market and recent significant increases in nominal wages as shown in nominal wages indices, is partly due to tax relief measures: the second stage of tax rate adjustments under the Inflation Compensation Act (Inflationsausgleichsgesetz) to offset income tax bracket creep took effect at the start of 2024. Some wage agreements for 2024 provide for wage increases during the course of the year, which in many cases also replace payments of the inflation compensation bonus. This is likely to accelerate the pace of wages tax revenue growth as the year progresses. Child benefit payments – which are financed from wages tax receipts – remained almost constant on the year due to unchanged benefit rates. Cash receipts from wages tax were up by about 5%.

Taxes on earnings

The first instalment of 2024 prepayments of assessed income tax and corporation tax fell due in March 2024. In addition, the revenue administration’s assessment activities resulted in back payments of taxes and tax refunds. Prepayments of income tax for the current year were down by about 2% on the year in March. Taking into account retroactive prepayments for previous years resulting from assessments, the prepayment volume dropped by approximately 3%. The balance between back payments and refunds resulting from assessment activities was slightly worse than in March 2023. Overall, cash receipts from assessed income tax fell by almost 5% on the year. Research allowance payments financed from assessed income tax receipts more than doubled on the year, but due to their low volume in absolute terms, they had only a negligible impact on net results.

Prepayments of corporation tax for the current year were up slightly, by 1%. Taking into account the retroactive prepayments for previous years, prepayments were up by almost 2%. The assessment of tax cases resulted in a significantly larger year-on-year increase in refunds compared with back payments due to a large individual case. The volume of research allowance payments financed from corporation tax receipts is significantly higher than the volume of payments financed from assessed income tax receipts. Nonetheless, the sharp increase of about 43% in the volume of payments had only a minor impact on cash receipts. On balance, cash receipts from corporation tax were down by about 9% on the year in March.

Continuing the pattern of recent months, receipts from final withholding tax on interest and capital gains posted a huge year-on-year gain of 165% in March. This result was probably driven once again by the significant increase in interest rates as well as higher investment assets. In contrast, receipts from taxation of capital gains are most likely having a smaller impact on revenue trends at this time. The yield from non-assessed taxes on earnings was 10% lower than in March 2023. 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 down by approximately 11% on the year March 2024. This decrease was 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. Revenue in March 2023 was significantly inflated as a result. This explains the sharp decline in import VAT receipts in March 2024, by about 49%. Even after adjusting for this special effect, however, receipts from import VAT declined significantly. This is in line with trends in nominal imports, which – despite an increase in March compared with the previous month – were down by about 9% on the year, partly due to decreasing prices (most recently in February).

Without this base effect, overall revenue from value added taxes would have risen in March, because receipts from (domestic) VAT went up by almost 25% on the year. This rise in VAT revenue is due, in part, to the decline in deductions of input VAT from paid import VAT. The revenue fluctuations from month to month are probably also due in part to the accounting practices of companies. Revenue from value added taxes stagnated in the first quarter of 2024 when compared with the same period last year. This reflects the continuing weak trend in consumption and a significantly reduced propensity to buy (see above). The anticipated recovery of private consumption over the course of the year will probably have a moderately positive impact on VAT revenue.

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Borrowing and guarantees

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