Federal budget trends in February 2026

Revenue

Federal revenue (excluding seigniorage, withdrawals from reserves and revenue from loans) totalled €59.4bn in the first two months of 2026, down by 6.5% (€4.1bn) on the year. This can be attributed to a 7.6% (€4.5bn) decline in tax revenues compared with the same period last year. For further information about tax revenues, please refer to the section “Tax revenues in February 2026” below.

The category of “other revenue” stood at €5.4bn, a year-on-year gain of 6.8% (€0.3bn). Receipts from the liquidation of the Economic Stabilisation Fund for Energy were up by €0.3bn, while the yield from allocations of spectrum increased by €0.2bn on the year. In contrast, Federal Employment Agency reimbursements pursuant to section 459 of Book III of the Social Code (Sozialgesetzbuch III) declined by €0.3bn.

Expenditure

In January and February 2026, federal expenditure totalled €93.1bn, up by 9.6% (€8.1bn) on the year. Within this category, investment spending surged by 104.2% (€4.8bn), while consumption spending grew at a far more moderate rate of 4.1% (€3.3bn).

In the latter subcategory, ongoing grants and subsidies increased by 2.7% (€1.6bn) on the year, and operating expenditure was up by 26.6% (€1.2bn) on the year. The increase in ongoing grants and subsidies is primarily attributable to a €1.8bn rise in spending to enhance security, defence and stability in partner countries as well as a €1.5bn increase in federal subsidies to the general pension insurance system. In contrast, subsidies to provide electricity price relief declined by €1.4bn in year-on-year terms.

The rise in investment spending was, to a great extent, driven by higher loans, which are recorded as investment spending in accordance with budget law. Contributing factors here included a €3.4bn 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 €2.3bn) 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 €33.7bn for the January–February 2026 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 towards the start of the year.

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Tax revenue in February 2026

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was up by approximately 1½% on the year in February 2026 (see the table “2026 trends in tax revenue (excluding local authority taxes)”). It should be noted, however, that the year-on-year rise is understated due to accounting effects related to import VAT and tobacco duty. After adjusting for these effects, there was a more significant increase of about 6½%.

Receipts from joint taxes make up the largest share of total tax revenue. The yield from these taxes recorded a slight year-on-year rise of about 1% in February 2026. Without the accounting effect related to import VAT (see further details on specific taxes below), the increase would have been noticeably higher. Withholding tax on interest and capital gains posted strong revenue gains. The growth in receipts from wages tax continued. In contrast, revenue from assessed income tax and non-assessed taxes on earnings declined in year-on-year terms. Corporation tax receipts remained nearly unchanged on the year.

Receipts from taxes accruing to the Federation rose by about 4% on the year in February 2026. While revenue from energy duty increased noticeably (by about 24%), receipts from tobacco duty declined by a similar amount (by approximately 20%). In the case of tobacco duty, this was due to an accounting effect that will lead to revenues being recorded with the March results. Without this effect, tobacco duty receipts for February 2026 would have been similar to those posted in February last year. The increase in energy duty revenue is unrelated to the current rise in fuel prices because February’s receipts are previous energy purchases. In the case of insurance tax, roughly one third of the annual yield tends to be generated in February. Receipts from this tax posted a marked year-on-year increase of 5½%. These three tax categories – energy duty, tobacco duty and insurance tax – had a greater impact on total receipts from federal taxes than all other taxes.

Receipts from taxes accruing to the Länder rose by about 4½% on the year in February 2026, thanks to growth in revenue from the two highest-revenue Länder taxes: receipts from inheritance tax rose by around 10%, while the yield from real property transfer tax was up by approximately 1%.

Apportionment of tax revenue among the different levels of government

The Federation’s receipts (after accounting for supplementary federal grants) were down by about 3% on the year in February 2026. This is primarily attributable to special effects relating to import VAT and tobacco duty. After adjusting for these effects, there was an increase of approximately 3%.

In addition, the Federation’s share of revenue from value added taxes declined in year-on-year terms (for details, see the table “Apportionment of VAT revenue in February 2026” below). This is due to an increase 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). Under the 2025 Act Amending the Fiscal Equalisation Act (FAG-Änderungsgesetz 2025), the fixed payments of VAT revenue from the Federation to local authorities are being increased in the 2025–2029 period as compensation for local authorities’ tax revenue shortfalls in connection with the immediate tax relief programme.

Transfers of own resources to the EU, which are financed from the Federation’s tax revenue, were up on the year in February 2026 (see the article on the October 2025 tax revenue estimate in the November 2025 issue of the monthly report [in German only]). Federal public transport subsidies to the Länder were slightly up on the year in February 2026, while supplementary federal grants to the Länder declined.

Länder tax revenue (after accounting for supplementary federal grants) rose by about 2% on the year in February 2026. Here, too, the accounting effect related to import VAT had a dampening impact. The same is true of the local authority share of joint taxes, which nonetheless increased by almost 8% on the year, thanks to the higher fixed payments and the strong growth in revenue from final withholding tax on interest and capital gains.

Apportionment of VAT revenue in February 2026

Further details on specific taxes

Wages tax

Revenue from wages tax rose by around 4½% on the year in February 2026, a somewhat smaller increase than in the previous month. It should be noted that a certain degree of volatility is typical for monthly results in this tax category. The revenue growth is probably mainly attributable to general wage increases. Based on the most recent employment figures, the labour market is unlikely to boost wages tax receipts in the coming months. Unemployment and employment levels remained roughly unchanged (see the table “Current economic indicators” in the German version of the monthly report). Leading indicators suggest that labour demand is likely to remain weak. Child benefit payments, which are financed from gross wages tax receipts, were up by about ½% on the year in February 2026 due to the increase in child benefit rates that took effect at the beginning of 2026.

Taxes on earnings

Revenue trends for assessed income tax and corporation tax in February 2026 were driven largely by the revenue administration’s assessments for previous periods, especially 2023 and 2024. In months when receipts are driven by 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 how quickly they are processed.

Revenue from assessed income tax posted a year-on-year decline of approximately 6% from an already relatively low level. Back payments and retroactive prepayments declined at a higher rate than refunds. Research allowance payments financed from assessed income tax receipts totalled approximately €8m in February 2026, a marked year-on-year rise. However, this had a negligible impact on the revenue trend for this tax.

Corporation tax receipts stood at around €0.4bn, roughly the same as in February last year. The negative number is due to the fact that refunds for past periods exceeded the sum of back-payments plus retroactive prepayments. Research allowance payments financed from corporation tax revenue totalled approximately €104m, a significantly higher amount than research allowance payments financed from assessed income tax. The volume of these payments was significantly higher than in February last year, by about 15%.

Receipts from non-assessed taxes on earnings recorded a drop of roughly 5% in February  2026. This can be attributed to a rise in refunds by the Federal Central Tax Office, which are financed from this revenue. Gross revenue (before deducting refunds) increased by nearly 11%. Receipts from withholding tax on interest and capital gains, which posted a sharp year-on-year decline of 16½% in January, recorded a significant increase of about 27% in February 2026. Looking at both months together, revenue from this tax remained practically unchanged in year-on-year terms. Receipts in this tax category are derived not only from taxes on interest income, but primarily from taxes on capital gains, which are subject to a degree of volatility.

Value added taxes

Revenue from value added taxes was down by about 3% on the year. However, this was due to the fact that some revenue from import VAT shifted into March because the due date for remitting import VAT (the 26th of each month) leaves only a few working days to process payments in February. This resulted in a 54½% decline in import VAT receipts. Without this shift, revenue from import VAT would have been up by about 6% in February, and overall receipts from value added taxes would have been up by about 7% on the year.

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Borrowing and guarantees

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