Federal budget trends up to and including March 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) in the period from January to March 2025 totalled €105.8bn, a year-on-year increase of 11.6% (€11.0bn). Tax revenue totalled €95.4bn, up by 11.4% (€9.8bn) on the year. For further information about tax revenues, please refer to the article “Tax revenues in March 2025” in the current issue of the monthly report.

The category of “other revenue” totalled €10.4bn in March 2025, a year-on-year gain of 13.0% (€1.2bn). Administrative revenue climbed by €3.0bn on the year in the first quarter of 2025, mainly due to revenue from the liquidation of the Economic Stabilisation Fund for Energy totalling €2.6bn. In contrast, revenue from the sale of holdings was down by €1.7bn on the year.

Expenditure

In the period from January to March 2025, federal expenditure totalled €122.7bn, up by 8.4% (€9.5bn) on the year. Broken down by economic category, investment spending increased by 79.1% (€4.9bn) on the year, while consumption spending rose by 4.2% (€4.5bn).

In the latter category, ongoing grants and subsidies posted particularly strong year-on-year growth of 5.6% (€4.3bn). This increase can be attributed primarily to the fact that spending on financial support provided under the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, or EEG Act) 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 three months of 2025. In addition, the federal subsidy to the general pension insurance system rose by €1.1bn. 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. By contrast, interest expenditure declined by 4.8% (€0.5bn) 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 investment expenditure was driven mainly by higher spending on financial assistance (up by 86.2% or €4.7bn), including an allocation of €4.3bn to increase the equity of Deutsche Bahn AG. Fixed asset investment posted a year-on-year rise of 25.9% (€0.2bn).

Fiscal balance

The federal budget recorded a deficit of €16.9bn for the January–March 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 March 2025

Tax revenue trends

Total tax revenue

Total tax revenue (excluding local authority taxes) was up by approximately 11% on the year in March 2025. Overall, there was a strong increase in yields from joint taxes, federal taxes and Länder taxes. Receipts from joint taxes increased by approximately 11% on the year. With the exception of non-assessed taxes on earnings, receipts from all categories of joint taxes were up on the year, in some cases significantly (see further details on specific taxes below).

Revenue from taxes accruing solely to the Federation climbed by about 7% on the year. This relatively sharp increase can be attributed in particular to a 58% year-on-year rise in receipts from tobacco duty, due to a very low 2024 baseline. Insurance tax revenue and revenue from the solidarity surcharge both posted a marked increase of approximately 7%. Revenue from energy duty, motor vehicle tax and electricity duty declined in March 2025.

Receipts from taxes accruing to the Länder grew by roughly 22% on the year in March 2025, with revenue from real property transfer tax rising by almost 37%. The second high-revenue tax accruing to the Länder is inheritance tax, which posted an increase of about 17% 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 14% on the year in March 2025. This was due to a rise in the Federation’s take from joint taxes and in receipts from federal taxes. The 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 March 2024 (see the table “Apportionment of VAT revenue in March 2025” below). The Federation’s receipts from value added taxes climbed by 19%, outpacing the growth rate in overall revenue from value added taxes. Furthermore, transfers of own resources to the EU, which are financed from the Federation’s tax revenue, recorded a year-on-year decline of €0.5bn. Federal subsidies to the Länder for public transport were slightly up on the year, as were supplementary federal grants to the Länder. Länder tax receipts (after accounting for supplementary federal grants) also rose significantly on the year by almost 11%, but this was slower than the the growth in the Federation’s tax receipts. The local authorities’ total take from joint taxes grew by approximately 8% on the year in March 2025.

Apportionment of VAT revenue in March 2025

In March 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 over 7% on the year in March 2025. Child benefit payments rose by roughly 1% on the year due to the increase in child benefit as of the beginning of 2025. Overall, gross receipts from wages tax climbed by more than 6%. Cash receipts in March included wages tax that was declared for February. On 22 January 2025, the Federal Ministry of Finance published the amended flow chart (Programmablaufplan), which is used as a basis for determining wages tax. The new flow chart includes the changes in the rate of income tax that were introduced with the Tax Law Development Act (Steuerfortentwicklungsgesetz), effective as of 1 January 2025. There were legal requirements for companies to implement these changes and carry out retroactive calculations as part of their wages tax accounting by 1 March 2025. Many companies are likely to have complied with these requirements during the month of February. In these cases, the revenue from wages tax in March was reduced due to the wages tax refunds that were calculated for January. As a result, gross year-on-year revenue from this tax rose less in March 2025 than it had in February, when it was up by more than 10%. It is fair to assume that this growth, which was nevertheless still strong in March, was mainly due to recent wage increases under collective agreements. Labour market trends, in terms of employment figures, are not currently having any positive impact on wages tax revenue.

Taxes on earnings

The first quarterly instalment of 2025 prepayments for both assessed income tax and corporation tax fell due in March. Assessed income tax prepayments for the current year rose by around 3% on the year in March. Retroactive prepayments were also up on the year. However, there was a slight decline in the balance between back-payments and refunds. Overall, receipts from assessed income tax were up by 5% on the year. In contrast, corporation tax prepayments for the current year fell by almost 3% compared with March 2024. Receipts from retroactive prepayments saw an even sharper decline. However, the balance between back-payments and refunds increased significantly, by over €1.5bn on the year. However, it should be noted that in the previous year, exceptionally high refunds of capital income tax that had been deducted in the tax withholding procedure had reduced revenues by roughly the same amount. If this hadn’t taken place, then the balance between back-payments and refunds would have remained largely unchanged on the year. Although receipts from corporation tax rose by over 16% as a result, they would have fallen by around 1.5% if the impact of the high refunds on the baseline figure is excluded. Clearly, the currently weak economic environment is having less of an impact on taxpayers subject to income tax than on companies that are subject to corporation tax, which are more closely integrated into global markets. This is consistent with the fact that the trend in value creation has been weaker in the manufacturing sector than with service providers.

Receipts from non-assessed taxes on earnings were down by almost 8% in March 2025. In contrast, revenue from final withholding tax on interest and capital gains posted a sharp increase of nearly 64% from an already very high 2024 baseline. Due to a lack of statistical information, it is not possible to reliably assess the extent to which this increase is attributable to a rise in interest income or capital gains. However, it can be assumed that an increase in capital gains in recent months contributed to the revenue growth.

Value added taxes

The yield from value added taxes rose significantly in March 2025, by about 16% on the year. (Domestic) VAT receipts were up by about 15%. There are no obvious reasons for this sharp increase; however, monthly receipts from overall VAT and its separate components are subject to volatility and can fluctuate significantly over the course of a year. Receipts from the “One Stop Shop” (OSS) scheme¹ had a relatively minor impact in March. A far more moderate gain would have been anticipated based on the overall performance of the economy. For example, nominal retail sales (including vehicle sales) were up by about 3.5% on the year in January 2025 (VAT revenue in March is based on January sales figures). Receipts from import VAT also posted a very strong year-on-year gain of almost 19%. The revenue resulted from imports in January, which were up by 8.7% on the year.

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Borrowing and guarantees

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