Federal budget trends up to and including February 2025

The budget preparation process for 2025 could not be completed by the end of the previous year in the way envisaged by Article 110 (2) of the Basic Law (Grundgesetz). Until the 2025 Budget Act has been adopted by the German Bundestag and promulgated in the Federal Law Gazette, the German government is therefore working on the basis of an interim budget, based primarily on Article 111 of the Basic Law (see the article on interim budget management in 2025 [“Vorläufige Haushaltsführung 2025”, available in German only] in the December 2024 issue of the monthly report). Given that the targets for the 2025 federal budget have not been determined, no target values are included in the following tables.

Revenue

Federal revenue (excluding seigniorage, withdrawals from reserves and revenue from loans) totalled €63.5bn in the first two months of 2025, up by 5.3% (€3.2bn) on the year. Tax revenues increased by 9.0% (€4.8bn) in year-on-year terms. For further information about tax revenues, please refer to the article “Tax revenues in February 2025” in the current issue of the monthly report.

The category of “other revenue” stood at €5.1bn in February 2025, a year-on-year decline of 23.7% (€1.6bn). This can primarily be attributed to the fact that the sale of holdings in the same period last year generated receipts totalling €1.7bn.

Expenditure

In the period from January to February 2025, federal expenditure totalled €85.0bn, up by 5.9% (€4.7bn) on the year. Broken down by economic category, investment spending increased by 12.6% (€0.5bn) on the year, while consumption spending rose by 5.5% (€4.2bn).

In the latter category, ongoing grants and subsidies recorded a year-on-year gain of 7.3% (€4.0bn), and human resources expenditure was up by 6.8% (€0.5bn) on the year. By contrast, interest expenditure declined by 2.0% (€0.2bn) on the year. This is partly due to changes in the accounting method: Since the beginning of 2025, interest expenditure has been recorded on an accrual basis. This has resulted in lower federal spending, because planned discounts are now distributed across the entire maturity period, thus significantly reducing the necessary fluctuation buffer for interest expenditure.

The increase in ongoing grants and subsidies in January–February 2025 can be attributed primarily to the fact that spending on financial support provided under the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG) was integrated into the core budget on 1 January 2025. Previously, EEG surcharge payments were recorded under the Climate and Transformation Fund. Approximately €2.2bn was spent for this purpose in the first two months of 2025. In addition, the federal subsidy to the general pension insurance system rose by €0.7bn. Federal grants to reimburse the Länder for social spending on basic income support for older people and for people with reduced earning capacity increased by €0.4bn on the year.

The increase in investment expenditure was mainly driven by higher spending on financial assistance (up by 10.0% or €0.4bn). Fixed asset investment posted a year-on-year rise of 35.5% (€0.1bn).

Fiscal balance

he federal budget recorded a deficit of €21.4bn for the January–February 2025 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. This is especially true at the start of the year, and even more so in 2025 due to the interim budget.

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Tax revenue in February 2025

Tax revenue trends

Total tax revenue

Total tax revenue (excluding local authority taxes) was up by approximately 8% on the year in February 2025. The rise was driven primarily by joint taxes, which account for the largest share of tax revenue. Receipts from joint taxes increased by nearly 10% on the year. The two highest-revenue taxes – wages tax and value added taxes – recorded substantial revenue gains. The yield from withholding tax on interest and capital gains continued to post strong growth, and receipts from non-assessed taxes on earnings were also up. In contrast, revenue from corporation tax and assessed income tax declined in year-on-year terms (see further details on specific taxes below).

Revenue from taxes accruing solely to the Federation recorded only a slight increase of about 1% on the year. This is partly due to the fact that tobacco duty receipts were down by nearly 34% due to an elevated 2024 baseline. Insurance tax revenue posted a marked increase of approximately 7%. This is particularly significant for the total annual yield, because February is by far the highest-revenue month for this tax. Other federal taxes posting gains in February 2025 included solidarity surcharge, energy duty, motor vehicle tax and electricity duty. In the case of electricity duty, the 2024 baseline now also includes the tax relief provided under the electricity price package.

Revenue from taxes accruing to the Länder was up by roughly 6% on the year in February 2025. Real property transfer tax continued to stabilise, posting receipts of approximately €1.2bn. Due to a weaker 2024 baseline, this meant an increase of just over 13% in year-on-year terms. The second high-revenue tax accruing to the Länder is inheritance tax, which posted a slight revenue increase of about 2% on the year.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) were up by roughly 8% on the year in February 2025. A somewhat smaller rise in revenue from taxes accruing solely to the Federation (see above) was counteracted by a stronger increase in the Federation’s take from joint taxes. Fixed payments transferred from the Federation’s share of VAT revenue to the Länder in accordance with the Fiscal Equalisation Act (Finanzausgleichsgesetz) were slightly lower than in February 2024 (see the table “Apportionment of VAT revenue in February 2025”). By contrast, transfers of own resources to the EU, which are financed from the Federation’s tax revenue, recorded a small year-on-year gain. Federal subsidies to the Länder for public transport were also up on the year, as were supplementary federal grants. Länder tax receipts (after accounting for supplementary federal grants) increased at a rate very similar to the Federation’s tax receipts, in year-on-year terms. The local authorities’ total take from joint taxes grew by approximately 12% on the year in February 2025. This was driven by increases in revenue from wages tax and final withholding tax on interest and capital gains.

Apportionment of VAT revenue in February 2025

In February 2025, revenue from value added taxes was distributed as follows among the Federation, Länder and local authorities:

Further details on specific taxes

Wages tax

Revenue from wages tax was up by nearly 13% on the year in February. Child benefit payments rose by roughly 1% on the year due to the increase in child benefit as of the beginning of 2025, and the retirement savings subsidy was up by a very similar amount. Overall, gross receipts from wages tax climbed by more than 10%. It is fair to assume that this strong revenue growth was mainly due to recent wage increases under collective agreements. In various industries, these agreements provided for inflation compensation bonuses followed in many cases by substantial wage adjustments. These adjustments were based on the wage level without accounting for the inflation compensation bonus. However, the February revenue figures do not yet reflect the tax schedule adjustments enacted under the Tax Law Development Act (Steuerfortentwicklungsgesetz) to offset bracket creep and exempt the minimum subsistence income from tax. These relief measures will probably have a dampening effect on revenue growth in the coming months. Labour market trends are another factor in the anticipated levelling-off of wages tax revenue growth over the further course of the year. This is because employment has remained stagnant at best according to the most recent figures, meaning that the labour market is unlikely to boost wages tax receipts at the current time.

Taxes on earnings

Revenue trends for assessed income tax and corporation tax in February 2025 were driven largely by the revenue administration’s assessments for previous periods. Significant year-on-year volatility can occur, for example as a result of fluctuations in the submission of tax returns, the number of cases processed by the revenue administration and large individual cases.

Revenue from assessed income tax was down by about €0.3bn on the year in February 2025. Back payments and refunds for past assessment periods both declined in year-on-year terms, with a somewhat sharper decline recorded in the case of back payments. (Retroactive) prepayments for previous years were also somewhat lower than in February 2024. At approximately €6m, research allowance payments financed from income tax receipts continued to have a negligible impact on net results, even though they once again more than doubled in year-on-year terms.

Corporation tax receipts were down by €0.5bn on the year and thus posted a negative balance of roughly €0.4bn. This is primarily attributable to an increase in refunds for past periods, while back payments and retroactive prepayments were significantly closer to the February 2024 figure. Research allowance payments financed from corporation tax totalled approximately €90m and thus had a greater impact than research allowance payments financed from assessed income tax. With an increase of nearly 70% on the year, they accounted for almost €40m of the year-on-year decline in corporation tax revenue.

Receipts from non-assessed taxes on earnings were up by about 12% in February 2025, albeit from a relatively weak 2024 baseline. In contrast, revenue from final withholding tax on interest and capital gains posted another strong increase of nearly 54% from an already very high baseline. Based on the sustained high interest rates, the volume of fixed-interest investments – and thus also the interest income that determines the tax yield – can be expected to increase further. It is fair to assume that the increase in capital gains, which are also subject to this tax, contributed to the revenue growth. However, there is no statistical information breaking down the sources of revenue.

Value added taxes

The yield from value added taxes rose significantly in February 2025, by about 8% on the year. As in previous months, receipts from the “One Stop Shop” (OSS) scheme¹ considerably increased the volatility of revenue trends over the course of the year. This is reflected in (domestic) VAT receipts, which were up by more than 10% on the year. Import VAT revenue declined by about 2% on the year. Looking at the macroeconomic situation, nominal imports of goods were noticeably higher than in the same month last year, meaning that the February decline in import VAT revenue does not necessarily provide an indication of trends over the further course of the year. Nominal retail sales can act as an indicator of future revenue trends for value added taxes overall. Here, the most recent figures show year-on-year increases of nearly 4%.

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Borrowing and guarantees

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