Federal budget trends up to and including July 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, withdrawal from reserves and revenue from loans) totalled €243.5bn in the seven months from January–July 2025, a year-on-year increase of 5.9% (€13.6bn). Tax revenue stood at €220.6bn, up by 7.2% (€14.8bn) on the year. For further information about tax revenues, please refer to the article “Tax revenues in July 2025” (“Steuereinnahmen im Juli 2025”, in German only) in the current issue of the monthly report.

Receipts in the category of “other revenue” totalled €22.9bn in the first seven months of 2025, a year-on-year decline of 4.9% (€1.2bn). Among the various types of “other revenue”, administrative revenue was up by €3.6bn on the year, mainly due to (a) a €2.4bn increase in receipts from the liquidation of the Economic Stabilisation Fund for Energy and (b) a €0.5bn increase in revenue from the distance-based HGV toll. In contrast, revenue from the sale of holdings was down by €3.5bn on the year. In addition, revenue generated in connection with the Offshore Wind Act (Windenergie-auf-See-Gesetz) declined by €1.2bn compared with the first seven months of 2024.

Expenditure

In the seven months from January to July 2025, federal expenditure totalled €277.1bn, up by 5.5% (€14.5bn) on the year. Broken down by economic category, investment spending increased by 10.5% (€2.4bn) on the year, while consumption spending rose by 5.1% (€12.1bn).

In the latter category, ongoing grants and subsidies grew at a particularly high rate of of 9.4% (€15.9bn). 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 €9.5bn was spent for this purpose in the first seven months of 2025. In addition, the federal subsidy to the general pension insurance system rose by €2.1bn. 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 20.6% (€5.1bn) 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 increase in investment expenditure was driven primarily by higher spending on financial assistance (up by 12.1% or €2.4bn), including allocations to increase the equity of Deutsche Bahn AG. These allocations rose by €1.2bn on the year in the first seven months of 2025. In addition, a €1.3bn liquidity loan that was granted to the Federal Employment Agency was recorded as an investment item as required by budget law. Fixed asset investment remained basically unchanged on the year (up by 0.1%).

Fiscal balance

The federal budget recorded a deficit of €33.6bn in the seven months from January to July 2025.

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 July 2025

Tax revenue trends

Total tax revenue

Total tax revenue (excluding local authority taxes) rose by 3% on the year in July 2025 (see table 2025 trends in tax revenue). Receipts from joint taxes, which account for the largest share of tax revenue, grew by nearly 3% on the year. The increase in joint tax revenue was driven by wages tax, which posted a strong gain that was basically in line with expectations, and in particular by assessed income tax. Echoing the results from the previous month, revenue from assessed income tax was significantly higher on the year in July due to special factors (see “Further details on specific taxes”). The yield from value added taxes was down on the year, however, in contrast to the sizeable gains recorded in May and June. Receipts from non-assessed taxes on earnings also declined on the year. The normalising trend in revenue from final withholding tax on interest and capital gains continued in July, with a much lower growth rate than those posted in the first four months of 2025.

Revenue from taxes accruing solely to the Federation were up by 1% on the year in July. Of these taxes, only insurance tax posted a substantial year-on-year gain (up by 9% on the year). The yield from tobacco duty climbed by about 1½% on the year. All other high-revenue federal taxes recorded declines. Cash receipts from the EU energy crisis contribution totalled approximately €130m in July (compared with €0 in July 2024).

The yield from taxes accruing solely to the Länder grew markedly by about 15% on the year in July. This increase was driven by receipts from the two highest-revenue Länder taxes, real property transfer tax and inheritance tax. In 2025, receipts from real property transfer tax have stabilised at a monthly average of just under €1.3bn. In July, revenue from this tax was up by roughly 9% on the year. Inheritance tax revenue recorded a year-on-year increase of 29% in July. Large monthly fluctuations in inheritance tax receipts are common.

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 1% on the year in July 2025 and therefore grew at a slower rate than overall tax receipts. This outcome was due in particular to the comparatively weak trends in revenue from purely federal taxes, while the Federation’s take from joint taxes grew at basically the same rate as overall joint tax revenue. In this context, the Federation’s take from value added taxes did not decline as much as overall VAT revenue did. 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 July 2025”). Transfers of own resources to the EU, which are financed from the Federation’s tax receipts, increased by nearly €0.3bn on the year. Supplementary federal grants to the Länder grew by a similar amount, while federal subsidies to the Länder for public transport increased only slightly on the year.

Länder tax revenue posted a year-on-year gain of 3.6% in July. Local authorities’ take from joint taxes increased by 8.1% on the year in July.

Apportionment of VAT revenue in July 2025

In July 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 revenue was up by nearly 5% on the year in July. Gross wages tax revenue (before deduction of child benefit and old-age pension allowance) climbed by just over 4%, with child benefit payments rising by about 1½% on the year due to the benefit rate increase that took effect at the beginning of 2025. In cumulative terms, growth in wages tax receipts has slowed down gradually over the course of the year due to increasingly high baseline figures from 2024. Nevertheless, cumulative gross receipts were up by nearly 5% on the year during the seven months from January to July, which is higher than the 3.8% growth rate projected for the entire year at the May meeting of the Working Party on Tax Revenue Estimates. A continued slow-down in growth rates is expected for the remainder of the year. Currently, labour market trends are not having an impact on wages tax revenue. The most recent data showed that employment figures were basically unchanged on the year, and short-time work levels remained elevated. Leading indicators do not point towards a pick-up in employment in the short term. In addition, last year’s appreciable rises in collectively agreed wages are now increasingly reflected in the baseline figures, which means that this factor will also have a declining impact on revenue trends.

Taxes on earnings

So far in 2025, trends in revenue from assessed income tax on the one hand and corporation tax on the other have differed. In July, receipts from both taxes were largely derived from the revenue administration’s assessment activities for previous years. Receipts from assessed income tax recorded a year-on-year gain of €1.1bn. As was the case in June, this increase was mainly due to prepayments for the period t-2 (currently, this means the year 2023), which rose by €0.7bn on the year to €1.0bn. These are prepayments that taxpayers make in connection with their tax returns for t-2 in order to avoid higher back-payments resulting from the subsequent assessment. These revenue spikes – where up to 50% of the prepayments for t-2 are made within a period of two months – have also occurred in past years, but in 2024 these were the months of August and September. The difference in timing between 2024 and 2025 was caused by a two-month reduction in tax return filing deadlines this year, as part of the gradual return to “normal” deadlines following the exceptions that were granted during the Covid-19 pandemic. Therefore, corresponding year-on-year revenue declines are expected in the next two months. 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.

Corporation tax revenue in July totalled €0.4bn, taking into account tax assessments as well as over €0.1bn in research allowance payments financed from corporation tax receipts. This is a slight year-on-year improvement of €0.2bn over the result for July 2024.

Revenue from non-assessed taxes on earnings was down markedly by about 9% on the year in July. This outcome followed a significant gain in June that had been caused by the elevated number of dividend payment dates set by large stock corporations during that month. Following significant increases in the months from April to June 2025, receipts from final withholding tax on interest and capital gains posted a more moderate year-on-year rise of just under 12% in July. This was likely due to the decline in interest rates, which is gradually being reflected in revenue figures. In addition, capital gains may have 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 down by about 3% in July. This falls within the usual range of monthly fluctuations and balances out the higher rates of change that were recorded in May and June. In cumulative terms, VAT receipts were up by roughly 5% on the year in the first seven months of the year. This reflects current economic trends, which show that consumption spending boosted GDP figures during the first two quarters of 2025.

The cumulative yield from domestic VAT was up by about 6½% on the year in the seven months from January to July, aided by receipts from the “One Stop Shop” (OSS) scheme. Macroeconomic trends remain moderately positive. For example, retail sales grew on the year in June. In cumulative terms, receipts from import VAT were up by about 1½% on the year in the first seven months of 2025. Trends in imports of goods, which posted year-on-year growth in the most recent reporting period, point towards further increases during the remainder of 2025.

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Borrowing and guarantees

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