Federal budget trends up to and including June 2025

The budget preparation process for 2025 could not be completed by the end of the previous year in the manner stipulated 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, withdrawal from reserves and revenue from loans) totalled €211.2bn in the first half of 2025, a year-on-year increase of 7.5% (€14.8bn). Tax revenue stood at €192.0bn, up by 8.8% (€15.6bn) on the year. For further information, please refer to the article “Tax revenues in June 2025” (in German only) in the current issue of the monthly report.

Receipts in the category of “other revenue” totalled €19.2bn in the first half of 2025, a year-on-year decline of 4.0% (€0.8bn). Among the various types of “other revenue”, administrative revenue was up by €3.1bn on the year, mainly due to a €2.4bn increase in receipts from the liquidation of the Economic Stabilisation Fund for Energy. In contrast, revenue from the sale of holdings was down by €3.5bn on the year.

Expenditure

In the period from January to June 2025, federal expenditure totalled €234.1bn, up by 6.4% (€14.2bn) on the year. Broken down by economic category, investment spending increased by 12.7% (€2.3bn) on the year, while consumption spending rose by 5.9% (€11.8bn).

In the latter category, ongoing grants and subsidies posted particularly strong year-on-year growth of 9.2% (€13.2bn). 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. These payments totalled approximately €7.4bn in the first half of 2025. In addition, the federal subsidy to the general pension insurance system rose by €1.9bn. Compared with 2024, an additional €0.8bn was allocated to the health fund for the purpose of compensating German health insurance providers for the costs of services benefiting society as a whole. Interest expenditure declined by 17.7% (€3.1bn) 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 growth in investment expenditure was driven primarily by higher spending on financial assistance (up by 14.0% or €2.3bn), including allocations to increase the equity of Deutsche Bahn AG. These allocations rose by €1.3bn on the year in the first half of 2025. Fixed asset investment grew by 3.6% (€0.1bn) in the first half of 2025.

Fiscal balance

The federal budget recorded a deficit of €23.0bn for the January–June 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 in 2025 due to the interim budget.

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Tax revenue in June 2025

Tax revenue trends

Total tax revenue

Total tax revenue (excluding local authority taxes) posted a substantial gain of over 7% on the year in June 2025 (see the table “2025 trends in tax revenue”). Receipts from joint taxes, which account for the largest share of tax revenue, grew by just under 7% on the year. Various factors led to sharp increases in revenue from non-assessed taxes on earnings and from assessed income tax (see “Further details on specific taxes”). The two highest-revenue taxes saw mixed results: receipts from value added taxes were up again substantially in June in an echo of May’s performance, while wages tax posted only weak revenue growth in contrast to May’s strong figures. The yield from final withholding tax on interest and capital gains grew at a much slower pace in June, in contrast to the strong upward trends seen during the first four months of the year. Receipts from corporation tax were down slightly on the year.

Revenue from taxes accruing solely to the Federation recorded a marked year-on-year gain of approximately 10% in June. This outcome was largely driven by strong growth in revenue from tobacco duty due to a low baseline figure from June 2024. The other high-revenue federal taxes – energy duty, solidarity surcharge, insurance tax, motor vehicle tax and electricity duty – likewise posted revenue increases.

The yield from taxes accruing solely to the Länder surged by approximately 25% on the year in June, a result driven by the two highest-revenue Länder taxes, real property transfer tax and inheritance tax. As in previous months, real property transfer tax brought in between €1.2bn and €1.3bn in June. This translated into a year-on-year gain of about 24%. If receipts remain at roughly the same level in the coming months, growth rates will trend slightly lower due to higher baseline figures from 2024. Inheritance tax revenue recorded a year-on-year increase of just under 36% in June. Large monthly fluctuations in inheritance tax revenue are generally the rule, not the exception.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) were up by about 9% on the year in June 2025. This was due primarily to gains in revenue from joint taxes and federal taxes. In this context, the Federation’s take from value added taxes increased at a somewhat higher rate than overall VAT revenue. This was because 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) were slightly lower on the year in June (see the table “Apportionment of VAT revenue in June 2025”). In addition, the Federation’s share of trade tax revenue (as apportioned by local authorities) was higher on the year, while transfers of own resources to the EU (which are financed from the Federation’s tax receipts) were lower on the year. Federal subsidies to the Länder for public transport were up slightly on the year, as were supplementary federal grants to the Länder.

Länder tax revenue posted a year-on-year gain of about 6% in June. Local authorities’ take from joint taxes increased by roughly 7% on the year in June 2025.

Apportionment of VAT revenue in June 2025

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

Further details on specific taxes

Wages tax

Net wages tax receipts climbed by about 2½% on the year in June. Gross wages tax revenue (before deduction of child benefit and old-age pension allowance) increased at a similar rate. Child benefit payments, which are financed from wages tax receipts, were up by roughly 1% on the year in June due to the increase in child benefit rates that took effect at the beginning of 2025. Wages tax revenue in June increased at a slower pace than in May. However, certain fluctuations in year-on-year growth rates are not unusual. Currently, labour market trends are not having any positive impacts on wages tax receipts. Employment trends (in terms of the number of persons employed) have remained stagnant overall, and job creation in certain sectors (such as health and social welfare), which has offset job losses in other sectors (such as manufacturing), has tended to occur in the area of part-time work. The tax schedule adjustments that were introduced on 1 January 2025 under the Tax Law Development Act (Steuerfortentwicklungsgesetz) to offset bracket creep and exempt minimum subsistence income from tax continue to have a dampening impact on wages tax revenue totals. For these reasons, wages tax revenue is not expected to gain much momentum in the coming months.

Taxes on earnings

The second quarterly instalments of 2025 prepayments for assessed income tax and corporation tax were due in June. In the case of assessed income tax, total prepayments were up by about 3% on the year in June, similar to the growth rate posted in March for the first quarter of 2025. Refunds and back-payments for past assessment periods were up substantially on the year in June, but on balance had little impact on overall year-on-year results. Receipts from assessed income tax were up sharply by nearly 14% on the year in June, due mainly to retroactive prepayments for the period t-2 (currently, this means the year 2023), which increased from about €0.1bn in June 2024 to about €1.5bn in June 2025. Such spikes in prepayments for the period t-2 have also been seen in past years, but usually not until later in the year. To the extent that these are merely revenue shifts within the course of a year, they will not result in revenue gains for the year in its entirety. Research allowance payments financed from assessed income tax receipts amounted to just under €8m and thus continued to have a negligible impact on net results.

In the case of corporation tax, prepayments are down slightly for the year to date. Similar to the situation with assessed income tax, refunds and back-payments of corporation tax resulting from revenue administration assessments were up substantially on the year in June, but on balance had little impact on overall year-on-year results. Gross corporation tax receipts posted a moderate year-on-year decline of roughly 2% in June. Research allowance payments financed from corporation tax revenue totalled approximately €133m in June 2025, more than double the figure for June 2024. On balance, cash receipts from corporation tax were down by nearly 3% on the year in June.

Revenue from non-assessed taxes on earnings posted a strong year-on-year gain of approximately 13% in June following a sharp year-on-year decline in May. This volatility during the course of a year is due mainly to the scheduling of annual general meetings by large stock corporations and the related dividend payment dates. Receipts from non-assessed taxes on earnings amounted to over €9.1bn in June, likely making June the most important revenue month for these taxes in 2025. Revenue from final withholding tax on interest and capital gains was up by about 12½% on the year in June. This increase was much lower than the cumulative growth rate recorded in the first half of 2025. There are presumably two factors at play here: First, it is likely that the decline in interest rates is making itself felt gradually. Second, capital gains probably played a key role in driving the revenue increases that occurred earlier in the year. No statistical data is available on this, however.

Value added taxes

Revenue from value added taxes was up markedly by about 7% on the year in June. Domestic VAT posted a sizeable gain of 9½%; it is likely that this increase was once again partly attributable to receipts from the “One Stop Shop” (OSS) scheme. Revenue from import VAT grew at a slightly slower pace (+½%) on the year than nominal imports, which posted a moderate increase. This is in line with the usual fluctuations, however. VAT revenue is expected to post somewhat weaker growth rates over the remaining course of the year, due among other things to the fact that last year’s baseline figures contain OSS payments for earlier periods. Inflation-adjusted private consumption, which is a key tax base for VAT, grew appreciably in the first quarter of 2025. However, leading indicators currently do not point towards a further pick-up in momentum.

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Borrowing and guarantees

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