Federal budget trends in January 2026

Revenue

Federal revenue (excluding seigniorage, withdrawal from reserves and revenue from loans) totalled approximately €26.5bn in January 2026, down by 11.8% (€3.5bn) on the year. This can be attributed to a 12.9% (€3.5bn) fall in tax revenues compared with January last year. For further information about tax revenues, please refer to the section “Tax revenues in January 2026” below.

Receipts in the category of “other revenue” totalled €3.0bn in January 2026, a year-on-year decline of 1.6% (€47m). Revenue from allocations of spectrum was up by €0.2bn on the year, while Federal Employment Agency reimbursements pursuant to section 459 of Book III of the Social Code (Sozialgesetzbuch III) declined by €0.3bn.

Expenditure

In January 2026, federal expenditure totalled €54.8bn, up by 12.5% (€6.1bn) on the year. Within this category, investment spending recorded a substantial year-on-year rise of 183.7% (€4.4bn), while consumption spending grew at a more moderate rate of 3.6% (€1.7bn).

Breaking down consumption spending further, ongoing grants and subsidies increased by 2.9% (€1.0bn) on the year, while operating expenditure was up by 20.5% (€0.5bn), driven by higher spending on military procurement. The increase in ongoing grants and subsidies in January 2026 is primarily attributable to a €1.8bn rise in spending to enhance security, defence and stability in partner countries. In contrast, subsidies to provide electricity price relief declined by €1.2bn in year-on-year terms.

The increase in investment spending was, to a great extent, driven by higher loans, which are recorded as investment spending in accordance with budget law. Factors contributing to this increase included the €2.5bn year-on-year rise in liquidity assistance provided to the Federal Employment Agency as well as multi-year loans to the health fund (up by €2.5bn) and to the long-term care insurance compensation fund (up by €0.8bn). Fixed asset investment was down by €0.1bn on the year.

Fiscal balance

The federal budget recorded a deficit of €28.3bn in January 2026.

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 towards the start of the year.

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Tax revenue in January 2026

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was down by approximately 3½% on the year in January 2026 (see the table “2026 trends in tax revenue (excluding local authority taxes)”). However, the 2025 baseline is understated due to special effects that mainly affected the figures for January 2025. After adjusting for these effects, there was a slight increase of approximately 1%.

Receipts from joint taxes made up the largest share of total tax revenue, recording a slight year-on-year rise of about 1%. Among the highest-revenue taxes, the yield from wages tax was up substantially in year-on-year terms, while value added taxes recorded moderate revenue growth. Receipts from assessed income tax, final withholding tax on interest and capital gains, corporation tax and non-assessed taxes on earnings were all down on the year (see further details on specific taxes below).

Revenue from taxes accruing to the Federation was nearly 39% lower than in January 2025. This substantial drop can be attributed to special effects – if they are excluded from the calculation, receipts from federal taxes were slightly up. These special effects related, in part, to energy duty and electricity duty: in these two tax categories, the revenue allocated to December 2024 was not collected until January 2025 (see the article on tax revenues in December 2024 in the January 2025 issue of the monthly report¹). Receipts from tobacco duty were also strongly elevated in January 2025 due to a one-off effect (see the article on tax revenues in January 2025 in the February 2025 issue of the monthly report²). This resulted in highly inflated baselines for all three of these tax categories, significantly affecting the year-on-year result for January 2026. As for alcohol duty, receipts attributable to January 2026 were already recorded in cash figures in December 2025. However, since receipts from alcohol duty make up only a small share of total federal tax revenue, this had a negligible impact overall.

The yield from taxes accruing to the Länder was up by approximately 1% on the year, with the two highest-revenue taxes (inheritance tax and real property transfer tax) both recording moderate growth.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) were down sharply, with a decline of nearly 13% in year-on-year terms. This was driven primarily by special effects relating to federal taxes (see above). In addition, the Federation’s take from joint taxes declined slightly, despite the slight uptick in total revenue from joint taxes. This is due to the way in which VAT revenue is apportioned, and specifically a result of changes in the fixed payments that are transferred from the Federation’s share of VAT revenue to the Länder and local authorities in accordance with the Fiscal Equalisation Act (Finanzausgleichsgesetz). These fixed payments were higher in January 2026 than in the same month last year, which had the effect of reducing the Federation’s share of VAT revenue (see the table “Apportionment of VAT revenue in January 2026” below). In addition, transfers of own resources to the EU, which are financed from the Federation’s tax revenue, were up on the year (see the article on the October 2025 tax revenue estimate in the November 2025 issue of the monthly report [in German only]³). Federal public transport subsidies to the Länder were slightly up on the year in January 2026, while supplementary federal grants to the Länder declined.

In contrast, Länder tax revenue (after accounting for supplementary federal grants) posted year-on-year gains of about 1% in January 2026. In addition to the slight increase in receipts from taxes accruing solely to the Länder, the distribution of VAT revenue was also a contributing factor. Local authorities’ share of joint taxes was up as well, recording a substantial year-on-year rise of 6%.

Apportionment of VAT revenue in January 2026

Further details on specific taxes

Wages tax

Revenue from wages tax recorded a significant year-on-year rise of around 9% in January 2026. Cash receipts in January are primarily derived from taxes on December wage payments, meaning that the strong upwards trend is likely to be mainly the result of tangible increases in gross wages and salaries over the course of 2025. In addition, a certain degree of volatility is typical for monthly results in this tax category. Labour market indicators point towards weaker growth in the coming months. For example, the most recent employment figures were down on the year (see the table “Current economic indicators” in the German version of the monthly report), and early indicators suggest that businesses continue to be cautious in their staffing decisions. Child benefit payments, which are financed from wages tax receipts, were up by just under 1% on the year in January due to the increase in child benefit rates that took effect at the beginning of 2026.

Taxes on earnings

Revenue from assessed income tax and corporation tax in Januar 2026 was mainly driven by the revenue administration’s assessments for previous periods, especially 2023 and 2024. In months in which tax receipts are strongly affected by the revenue administration’s assessment activities, significant fluctuations can arise (both over the course of the year and in year-on-year terms) depending on the volume of incoming tax returns and the extent to which they have been processed.

In January 2026, the yield from assessed income tax recorded a noticeable year-on-year decline of approximately 14%. Back payments and refunds for past assessment periods were both down on the year, with back payments recording a greater decline (in terms of the amount). Moreover, the volume of retroactive prepayments was somewhat lower than in January 2025. Research allowance payments financed from assessed income tax receipts totalled nearly €8m in January 2026, a marked year-on-year rise. However, this had a negligible impact on the revenue trend for this tax.

Corporation tax revenue declined by 79% on the year in January 2026. In this category, back payments resulting from assessments were markedly down on the year, while refunds increased somewhat. Alongside the usual revenue fluctuations resulting from assessment activities, the weak economy probably continued to play a role in this, especially in the industrial sector. Research allowance payments financed from corporation tax revenue totalled nearly €89m, a significantly higher amount than research allowance payments financed from assessed income tax. The volume of payments was similar to that recorded in January last year.

Receipts from non-assessed taxes on earnings recorded a moderate drop of approximately 4% in January 2026. Factors here included a decline in gross revenue as well as a rise in refunds by the Federal Central Tax Office, which are financed from this revenue. Receipts from withholding tax on interest and capital gains posted a more significant decline of 16½% on the year. It can be assumed that this was primarily driven by lower interest rates (especially on short-term deposits) since the middle or end of 2024, which are showing up in revenue trends with a certain time lag. Nevertheless, the revenue figures for this tax remained at a very high level in January 2026 when viewed against long-term trends.

Value added taxes

Revenue from value added taxes posted a moderate year-on-year rise of 2% in January 2026. Given the volatility of VAT receipts over the course of a year, the growth recorded for January offers very limited insights into revenue trends for the remainder of the year. Current macroeconomic indicators point to a subdued outlook: the most recent retail sales figures remained stagnant, while the consumer climate is still low, despite a slight recovery.

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Borrowing and guarantees

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Calendar