Federal budget trends up to and including March 2026

Revenue

Federal revenue (excluding seigniorage, withdrawals from reserves and revenue from loans) totalled €98.0bn in the first quarter of 2026, down by 7.4% (€7.9bn) on the year. This decline can be attributed mainly to lower tax revenues, which were down by 5.9% (€5.6bn) on the year, largely due to an increase in payments to the European Union (GNI own resources). For further information about tax revenues, please refer to the section “Tax revenues in March 2026” below.

Receipts in the category of “other revenue” totalled €8.1bn in the first quarter of 2026, a year-on-year decline of 21.8% (€2.3bn) that was driven mainly by a sharp €2.2bn decline in receipts from the liquidation of the Economic Stabilisation Fund for Energy.

Expenditure

In the first quarter of 2026, federal expenditure totalled €129.8bn, a year-on-year increase of 5.8% (€7.1bn). Broken down by economic category, investment spending was up by 13.1% (€1.5bn) on the year, while consumption spending grew by 5.1% (€5.7bn).

In the latter subcategory, ongoing grants and subsidies rose by 4.5% (€3.7bn) on the year, and operating expenditure was up by 26.4% (€2.0bn) on the year. The increase in ongoing grants and subsidies is primarily attributable to a €2.0bn rise in spending to enhance security, defence and stability in partner countries as well as a €2.2bn increase in federal subsidies to the general pension insurance system. In contrast, subsidies to provide electricity price relief declined by €0.8bn in year-on-year terms.

The growth 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 €4.3bn year-on-year increase 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). Investment spending was tempered by the fact that no equity allocations to Deutsche Bahn AG are planned for this year; last year, roughly €4.2bn had been spent for this purpose by the end of March. Fixed asset investment was down by €0.1bn on the year.

Fiscal balance

The federal budget recorded a deficit of €31.9bn in the first quarter of 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 March 2026

Tax revenue trends

Total tax revenue

Overall tax revenue (excluding local authority taxes) was up by approximately 3½% on the year in March 2026 (see the table “2026 trends in tax revenue (excluding local authority taxes)”). However, this outcome was inflated by special factors in connection with import VAT and non-assessed taxes on earnings. Without these special factors, total tax revenue would have posted a slight year-on-year decline in March. Due to the time lag between the date when a tax becomes chargeable and the date when it shows up in cash statistics, the war in Iran did not have any major impacts on revenue figures for March.

Receipts from joint taxes make up the largest share of total tax revenue. The yield from these taxes was up by nearly 4½% on the year in March, mainly due to special factors. Both non-assessed taxes on earnings and value added taxes posted sharp year-on-year gains (see further details on specific taxes below). Wages tax revenue kept pace with the growth rate recorded in February. In contrast, receipts from corporation tax, assessed income tax and final withholding tax on interest and capital gains were down on the year in March. While the decline in receipts from final withholding tax on interest and capital gains was driven by the high baseline figure from the previous year, the contractions in corporation tax and assessed income tax revenue also likely reflect the weak performance of the economy in previous years.

Revenue from taxes accruing to the Federation declined by about 4½% on the year in March. The yield from insurance tax was up on the year, but energy duty, tobacco duty and electricity duty all posted revenue declines. In the case of electricity duty, receipts were down mainly due to the reduction in duty rates for the manufacturing sector.

Revenue from taxes accruing to the Länder was up by nearly 10½% on the year in March. Real property transfer tax posted its highest monthly revenue figure since 2022, an outcome that likely reflects the real estate market’s moderate recovery.

Apportionment of tax revenue among the different levels of government

The Federation’s tax receipts (after accounting for supplementary federal grants) were down by about 3½% on the year in March 2026. Here, the growth in revenue from joint taxes served to offset (a) significantly higher transfers of EU own resources (see the article on October 2025 tax revenue estimates in the German version of the November 2025 monthly report), which are financed from the Federation’s tax revenue, as well as (b) declines in revenue from federal taxes.

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 March 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.

Länder tax revenue (after accounting for supplementary federal grants) increased by about 5% on the year in March due to higher yields from joint taxes and Länder taxes. The share of joint tax revenue allocated to local authorities was also up on the year, thanks mainly to higher fixed payments of VAT revenue.

Apportionment of VAT revenue in March 2026

In March 2026, revenue from value added taxes was distributed as follows among the Federation, Länder and local authorities:

Further details on specific taxes

Wages tax

Wages tax revenue rose by about 4% on the year in March. This outcome was similar to the growth rate achieved in February. However, labour market indicators – especially the year-on-year decline in total employment – suggest that the momentum in wages tax revenue is likely to slow down (see the table “Current economic indicators” in the German version of the monthly report). The war in the Middle East also poses economic risks. Child benefit payments, which are financed from gross wages tax receipts, were up by about 1% on the year in March 2026 due to the increase in child benefit rates that took effect at the beginning of 2026.

Taxes on earnings

The first quarterly instalments of 2026 prepayments for assessed income tax and corporation tax were due in March. Prepayment revenue in March was up slightly on the year. However, for both taxes, the revenue administration’s assessment activities for previous years led to a sharp year-on-year decline in back-payments for previous assessment periods as well as a significant increase in refunds. Retroactive prepayments for previous periods were also lower on the year for both taxes. All of these outcomes likely reflect the weak performance of the economy in recent years. On balance, receipts from assessed income tax declined by approximately 4% on the year in March. The yield from corporation tax contracted even more sharply, by about 12%. Research allowance payments financed from assessed income tax receipts totalled roughly €9m in March, while research allowance payments financed from corporation tax revenue amounted to about €119m. Although both of these figures reflect sizeable year-on-year increases, their overall magnitude had little or no impact on net revenue figures for both taxes.

Due to a special factor, the yield from non-assessed taxes on earnings was sharply higher on the year in March, by about 55%. In contrast, receipts from final withholding tax on interest and capital gains posted a year-on-year decline of nearly 14% against a very high baseline figure from the previous year. From a long-term perspective, receipts from this tax – including in March 2026 – remain at a very high level. This is likely due in large part to higher interest rates and investment volumes and possibly also to capital gains volatility. No corresponding statistical data is available, however.

Value added taxes

Receipts from value added taxes were up by roughly 14½% on the year in March, mainly due to technical factors in connection with the posting of revenue. Specifically, about €3.2bn in import VAT revenue from February was not posted until March (see the corresponding article in the German version of the March 2026 monthly report). Without this revenue shift, overall VAT revenue in March would have been up only slightly by about ½%. Import VAT receipts were up by nearly 44% on the year in March due to the shift in revenue. Absent this special factor, import VAT would have been down by approximately 5% on the year. VAT receipts collected by the revenue administrations of the Länder – which together with import VAT receipts make up total VAT revenue, and which were not affected by the revenue shift – rose at a moderate pace of about 2½% on the year in March. Looking at trends in VAT tax bases, the most recent data shows that retail sales have weakened in year-on-year terms. In contrast, goods imports – a key indicator for import VAT – rebounded in March (see the table “Current economic indicators” in the German version of the monthly report). Future trends in VAT revenue will also depend a great deal on whether and to what extent consumers respond to rising geopolitical uncertainties by holding back on purchases.

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Borrowing and guarantees

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