Federal budget trends up to and including August 2025

Until the 2025 Budget Act (Haushaltsgesetz 2025) has been adopted by the German Bundestag and promulgated in the Federal Law Gazette, the German government is working on the basis of an interim budget, based primarily on Article 111 of the Basic Law (Grundgesetz) (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 yet been determined, no target values are included in the following tables.

Revenue

Federal revenue (excluding seigniorage, withdrawals from reserves and revenue from loans) totalled €273.2bn in the eight months from January to August 2025, a year-on-year increase of 5.2% (€13.6bn). Tax revenue stood at €247.6bn, up by 6.4% (€14.8bn) on the year. For further information about tax revenues, please see “Tax revenues in August 2025” below.

Receipts in the category of “other revenue” totalled €25.6bn in the first eight months of 2025, a year-on-year decline of 4.5% (€1.2bn). Among the various types of “other revenue”, administrative revenue was up by €3.7bn 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 eight months of 2024.

Expenditure

In the eight months from January to August 2025, federal budget expenditure totalled €319.0bn, up by 6.5% (€19.4bn) on the year. Broken down by economic category, investment spending increased by 10.0% (€2.6bn) on the year, while consumption spending rose by 6.1% (€16.8bn).

In the latter category, ongoing grants and subsidies grew at a particularly high rate of 9.8% (€18.8bn). 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 €11.8bn was spent for this purpose in the first eight months of 2025. In addition, the federal subsidy to the general pension insurance system rose by €2.4bn. 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 12.2% (€3.5bn) 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 primarily by higher spending on financial assistance (up by 11.9% or €2.7bn), including allocations to increase the equity of Deutsche Bahn AG. These allocations rose by €1.2bn on the year in the first eight months of 2025. In addition, liquidity assistance totalling €1.6bn was granted to the Federal Employment Agency. The equity allocations as well as the liquidity assistance are recorded as investment spending in accordance with budget law. Fixed asset investment was down slightly on the year by 1.7% (€0.1bn).

Fiscal balance

The federal budget recorded a deficit of €45.8bn in the eight months from January to August 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 August 2025

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) recorded a moderate year-on-year gain of 2% in August 2025 (see the table “2025 trends in tax revenue (excluding local authority taxes)”). Receipts from joint taxes, which account for the largest share of tax revenue, were up markedly by approximately 5% on the year. The two most important joint taxes – VAT and wages tax – posted revenue growth in August, as did corporation tax and withholding tax on interest and capital gains. In contrast, the yield from assessed income tax was down sharply on the year, reversing the positive trends seen in June and July (see “Further details on specific taxes” below and the article “Tax revenues and economic environment in July 2025” [in German only] in the August 2025 edition of the monthly report). Receipts from non-assessed taxes on earnings also declined on the year in August.

Revenue from taxes accruing solely to the Federation was down by nearly 16% on the year in August. This decline can be attributed mainly to the EU energy crisis contribution and thus to a one-off effect. The EU energy crisis contribution applies only to fiscal years 2022 and 2023 and is being collected in 2024 and 2025. In August 2024, receipts from the EU energy crisis contribution totalled approximately €1.8bn. For the entire year of 2024, cash receipts from the EU energy crisis contribution amounted to €1.9bn. Cash receipts from the EU energy crisis contribution were zero in August 2025, and only €0.1bn has been collected so far in 2025. Without this one-off effect, federal taxes would have posted year-on-year revenue growth in August, and overall tax revenue would have increased at a significantly higher rate. Receipts from most other high-revenue federal taxes were up on the year in August.

The yield from taxes accruing solely to the Länder grew by roughly 5% on the year in August. This outcome was driven by the two highest-revenue Länder taxes — inheritance tax (up by about 5%) and real property transfer tax (up by about 6%). In the case of real property transfer tax, receipts over the course of the year have now stabilised at a monthly average between €1.2bn and €1.3bn.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) were down slightly on the year by about ½% in August 2025. This outcome was driven by the decline in revenue from purely federal taxes, which in turn was driven by the one-off effect in connection with the EU energy crisis contribution (see above). In contrast, the Federation’s take from joint taxes grew at a higher rate than overall revenue from joint taxes. 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 lower on the year in August (see the table “Apportionment of VAT revenue in August 2025”). In 2024, the changes adopted under the Act Amending the 2024 Fiscal Equalisation Act and the Stabilisation Fund Act (Gesetz zur Änderung des Finanzausgleichsgesetzes 2024 und zur Änderung des Stabilisierungsfondsgesetzes) temporarily increased these fixed payments. For the remainder of 2025, this is likely to have an impact on year-on-year figures relating to the apportionment of VAT revenue among the various government levels. Transfers of own resources to the EU (which are financed from the Federation’s tax receipts) and federal public transport subsidies to the Länder were slightly higher on the year in August, while supplementary federal grants to the Länder recorded a sizeable year-on-year increase.

Länder tax revenue was up by about 4½% on the year in August, due in part to the increase in supplementary federal grants. Local authorities’ take from joint taxes increased by approximately 2% on the year in August.

Apportionment of VAT revenue in August 2025

In August 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 grew by roughly 3½% on the year in August. Gross wages tax revenue (before deducting child benefit and old-age pension allowance) was up by just under 3%. Child benefit payments – which are financed from wages tax receipts – rose by about 1½% on the year due to the benefit rate increase that took effect at the beginning of 2025. These figures show that, as expected, the year-on-year growth rates for wages tax revenue have continued to flatten out over the course of the year, because last year’s wage increases are now increasingly reflected in the baseline figures. The weak performance of the economy is continuing to have a noticeable impact on the labour market, with the most recent data showing stagnant levels of seasonally adjusted total employment. Accordingly, the labour market is not expected to boost wages tax revenue trends for the time being.

Taxes on earnings

Revenue trends for assessed income tax and corporation tax in August 2025 were driven by the revenue administration’s assessments for previous periods. This can lead to greater volatility in year-on-year figures, for example as a result of larger assessment cases as well as fluctuations in the number of (a) tax returns submitted and (b) cases processed by the revenue administration.

Receipts from assessed income tax were down sharply by about 41% on the year. This is due mainly to (retroactive) prepayments for the assessment period t-2 (currently, this means the year 2023), which were down sharply on the year. Such prepayments are made by taxpayers in connection with their tax returns for t-2 in order to avoid back-payments and/or interest payments that might result from the subsequent assessment. In 2025, revenue spikes from t-2 prepayments occurred in June and July. Last year, they occurred in August and September. The difference in timing between 2024 and 2025 was caused by the shortening of tax return filing deadlines this year, as part of the gradual return to “normal” deadlines following the Covid-19 pandemic. For this reason, year-on-year revenue declines are expected again in September, offsetting the revenue gains that were recorded in June and July. Research allowance payments financed from assessed income tax receipts totalled about €7m and thus once again had a negligible impact on net results.

In the case of corporation tax revenue, assessment activity led to a year-on-year gain of about €0.9bn in August. Back-payments for past assessment periods were markedly higher on the year, and refunds were lower on the year. Such fluctuations in year-on-year comparisons are not unusual in months when revenue is derived primarily from assessment activity. Research allowance payments financed from corporation tax receipts totalled roughly €83m – a year-on-year rise of about 29% – and thus had a larger impact on net results than was the case for assessed income tax.

Revenue from non-assessed taxes on earnings was down by roughly 6½% on the year in August. In cumulative terms, receipts from these taxes posted a year-on-year decline of 4% in the eight months from January to August 2025. In contrast, revenue from final withholding tax on interest and capital gains climbed by about 5% on the year in August. This was in line with the assumption that declining interest rates, combined with the volatility of capital gains, will lead to lower yields from this tax and in turn to lower rates of year-on-year change. However, it is difficult to make accurate assessments of future revenue trends for this tax because the available data does not provide a breakdown between revenue from interest and revenue from capital gains.

Value added taxes

Receipts from value added taxes were up by about 5½% on the year in August. As usual, it is possible that the volatility of revenue from the “One Stop Shop” scheme is contributing to fluctuations in year-on-year figures, which in turn makes it harder to draw meaningful conclusions. Taken cumulatively, VAT revenue was up on the year by approximately 5% in the first eight months of 2025. Macroeconomic indicators suggest that moderate revenue growth will continue in the coming months, given the year-on-year increases in the most recent data for imports of goods (a key factor for import VAT) and for retail sales (which form part of the tax base for domestic VAT).

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Borrowing and guarantees

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