Federal budget trends up to and including July 2024

Revenue

Federal revenue (excluding seigniorage, withdrawal from reserves and revenue from loans) totalled €229.9bn for the period from January to July 2024, up by 6.6% (€14.2bn) on the year. Tax revenues were up by 3.1% (€6.2bn) on the year. For further information about tax revenues, please refer to the article “Tax revenues in July 2024” [in German only] in the current issue of the monthly report.

The category of “other income” totalled €24.1bn in July 2024, a year-on-year gain of 50.3% (€8.1bn). Within this category, revenue from the sale of holdings and from the liquidation of other capital assets belonging to the Federation rose by €3.5bn compared with the same period last year. Receipts from the distance-based commercial vehicle toll increased by €3.0bn on the year, mainly due to Germany’s recent addition of a CO2 component to the toll. In July, revenue was generated for the first time in connection with the Offshore Wind Act (Windenergie-auf-See-Gesetz), amounting to €1.3bn.

Expenditure

In the period from January to July 2024, federal expenditure totalled €262.6bn, roughly the same as in the same period of 2023 (down by 0.2%, or €0.5bn). Broken down by economic category, consumption spending recorded a slight rise of 0.6% (€1.5bn), while investment spending was down by 8.3% (€2.0bn) on the year.

The uptick in consumption spending can be attributed to a 2.3% (€3.8bn) increase in ongoing grants and subsidies and an 8.1% (€1.9bn) rise in personnel expenditure. In contrast, interest expenditure declined by 11.5% (€3.2bn) on the year. The increase in ongoing grants and subsidies was the result of contrasting trends: spending on citizen’s benefit was up by €2.2bn, and the federal subsidy to the general pension insurance system rose by €1.4bn on the year. Spending on efforts to enhance security, defence and stability in partner countries was up by €0.8bn on the year in the first seven months of 2024. However, federal payments to the health fund to cover pandemic-related costs declined by €1.2bn on the year. In addition, no money was budgeted this year for a supplementary federal subsidy to the health fund or for federal lump-sum contributions to the long-term care insurance system. In the January–July 2024 period, this led to reductions in federal spending of €1.2bn and €1.0bn respectively when compared with the same period last year.

As in previous months, the decline in investment spending was mainly attributable 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 was up by 23.3% (€4.3bn) on the year. This was mainly due to an allocation of €3.0bn to increase the equity of Deutsche Bahn AG. A total of €5.5bn is earmarked for this purpose in the 2024 federal budget. Additionally, investment grants to Autobahn GmbH des Bundes were €0.7bn higher than in January–July 2023.

Fiscal balance

The federal budget recorded a deficit of €32.7bn for the January–July 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.

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Tax revenue in July 2024

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was down by approximately 8% on the year in July 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 decline of about 11% in July. As in recent months, revenue from withholding tax on interest and capital gains increased substantially. However, due to the higher July 2023 baseline, the rate of growth was significantly lower this month than it has been in recent months. Revenue from assessed income tax rose by €0.2bn. Receipts from wages tax were up by more than 6% in year-on-year terms, the highest monthly growth rate in 2024 so far. In contrast, value added taxes posted substantial revenue declines. It should be noted, however, that the 2023 baseline for value added taxes was significantly overstated due to a special effect. Receipts from non-assessed taxes on earnings fell sharply in year-on-year terms. The overall increase in tax revenue (excluding local authority taxes) for the year to date (January–July 2024) was just below 2%.

Revenue from taxes accruing solely to the Federation was up by nearly 6% on the year in July 2024. Federal taxes that recorded significant gains include solidarity surcharge, tobacco duty, insurance tax, motor vehicle tax and aviation tax. In the case of tobacco duty, a considerable share of June revenue was not recorded until July. Receipts from energy duty increased slightly. In contrast, revenue from electricity duty and alcohol duty declined. As in previous months, the decline in electricity duty receipts reflects the relief provided through the electricity price package.

Revenue from taxes accruing to the Länder posted a significant year-on-year increase of more than 18% in July. The yields from inheritance tax and real property transfer tax each increased by approximately 20%.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) were down by nearly 10% on the year in July 2024. This is mainly attributable to substantial declines in revenue from joint taxes, especially non-assessed taxes on earnings and value added taxes. Higher payments of public transport subsidies from the Federation to the Länder and of supplementary federal grants to the Länder further reduced the Federation’s revenues. However, the Federation’s revenue was buoyed by an increase in receipts from federal taxes and a decline in transfers of own resources to the EU. The decline in revenue from value added taxes recorded in July 2024 affected the Federation disproportionately. This is due to changes in the fixed payments that are transferred from the Federation’s share of VAT revenue to the Länder and local authorities in accordance with the Fiscal Equalisation Act (Finanzausgleichsgesetz). For details, see the table “Apportionment of VAT revenue in July 2024” below.

After accounting for supplementary federal grants, the Länder posted a year-on-year tax revenue decline of 7% in July 2024 due to a sharp decrease in their share of revenue from joint taxes. This was despite an increase in revenue from taxes accruing solely to the Länder. Local authorities’ take from their share of joint taxes was up by approximately 6% on the year in July 2024.

Apportionment of VAT revenue in July 2024

In July 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 receipts from wages tax increased by 5% on the year in July 2024. On the labour market, the main sign of the current economic weakness is a rise in unemployment. However, wages tax revenue is affected primarily by changes in levels of employment, not unemployment. Employment is still recording slight year-on-year rises, even though the rate of growth has slowed increasingly. At the same time, however, short-time work levels were higher in July 2024 than in the same month last year, which had a dampening effect on wages tax revenue. On balance, labour market trends had no significant impact on wages tax revenue. Rather, the year-on-year increase was driven primarily by growth in nominal wages. It should be noted, however, that part of this growth is still attributable to the (tax-exempt) inflation compensation bonus. The significant relief provided by the 2024 tax rate changes that were introduced with the Inflation Compensation Act (Inflationsausgleichsgesetz) also has a moderating effect on wages tax revenue, meaning that wages tax revenue growth can be expected to remain below the level that would be expected based on nominal wages growth. After deducting child benefit payments (which remained virtually unchanged on the year), cash receipts from wages tax rose by approximately 6% on the year in July 2024.

Assessed income tax and corporation tax

Revenue from assessed income tax and corporation tax in July 2024 was driven primarily by the revenue administration’s assessment activities. The assessments currently being conducted mainly relate to the year 2022. In the case of assessed income tax, employee tax assessments for 2023 are resulting in high levels of refunds as well. This had little impact on July revenue in year-on-year terms. In the case of assessed income tax, the balance between retroactive prepayments, back payments and refunds resulted in a slight revenue increase of approximately €0.2bn, while receipts from corporation tax recorded a decline of about €0.3bn. Research allowance payments financed from assessed income tax receipts more than doubled on the year, with an increase of nearly 140%. However, at approximately €4m, they had a negligible impact on net results. Research allowance payments financed from corporation tax revenue rose by around 70% on the year, reaching approximately €60m. On balance, the cash result for assessed income tax was slightly negative. In year-on-year terms, an increase of about €0.2bn was recorded. Cash receipts from corporation tax declined by €0.3bn to €0.6bn.

Capital income taxes

A very sharp rise in receipts from final withholding tax on interest and capital gains has been recorded so far this year. This trend slowed somewhat in July, with an increase of 81% on the year. As was already becoming apparent in previous months, revenue from this tax is stabilising at a level of approximately €1.4bn per month.

Non-assessed taxes on earnings recorded a sharp year-on-year decline of about 55% in July 2024. To a great extent, monthly revenue from this tax is determined by the timing of dividend payments by large corporations, which are subject to considerable year-on-year fluctuations. Thus, last month’s strong revenue increase already indicated that a decline would be recorded this month. The drop in revenue was magnified by an individual case in July 2023 that featured unusually high dividend payments, with much lower dividend payouts expected this year. In cumulative terms, receipts from this tax declined by approximately 10% on the year in the first seven months of 2024.

Value added taxes

Receipts from value added taxes fell by about 9% on the year in July 2024, with declines recorded for both (domestic) VAT (down by 10%) and import VAT (down by 5%). It is worth noting, however, that last year’s (domestic) VAT receipts were significantly overstated due to substantial receipts from the “One Stop Shop” scheme (see the August 2023 issue of the monthly report). Nevertheless, the trend in revenue from VAT also indicates that, despite the recovery in real incomes, private consumption has failed to gain much momentum. Trends in import VAT revenue are in line with nominal imports of goods, which were down by more than 6% on the year in June 2024, the most recent month for which figures are available.

Cumulative receipts from value added taxes in the January–July period were up by only about 1% on the year.

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Borrowing and guarantees

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