The Working Party on Tax Revenue Estimates is an advisory council at the Federal Ministry of Finance. It has existed since 1955. In addition to the Federal Ministry of Finance, which has lead responsibility, the council’s membership includes the Federal Ministry of Economics and Technology, five economic research institutes, the Federal Statistical Office, the Bundesbank, the German Council of Economic Experts, the finance ministries of the Länder and the Federation of German Local Authority Associations. The composition ensures the independence of the body. The representatives sent by the institutions belong to the working level. The chairmanship is incumbent upon the relevant Head of Division in the Finance Ministry.
2. Operating method
The Working Party bases its estimates on key macroeconomic data supplied by the German federal government and co-ordinated between the various ministries under the aegis of the Federal Ministry of Economics and Technology.
The members of the Working Party on Tax Revenue Estimates are not given a fixed set of instruments to use. Those members who produce their own proposed estimates draw them up using their own methods and models. New approaches are presented and discussed at methodology sessions.
In preparation for the estimates of the Working Party, eight of its members, namely the economic research institutes, the Bundesbank, the Council of Economic Experts and the Federal Ministry of Finance produce, independently of each other, their own proposed estimates for each individual tax. These proposed estimates are the subject of discussion in the Working Party. The Working Party discusses each tax until a consensus has been found. Based on the estimates for the individual taxes, the revenue expected to accrue to the German federal government, the Länder , the local authorities and the EU is extrapolated.
Directly after the meeting, the results are announced by way of a press release from the Federal Ministry of Finance. The tables of results are then put online so that interested members of the public can access them.
The Working Party on Tax Revenue Estimates has a sub-committee on regionalisation made up of the Federal Ministry of Finance and the Länder representatives from the Working Party. In this context, ‘regionalisation’ refers to the process of dividing the tax revenues estimated by the Working Party among the individual Länder . This sub-committee considers problems and reaches agreements in connection with the regionalisation of the Working Party’s results for the tax revenue of the Länder .
The regionalisation is co-ordinated and conducted by the finance ministry of Baden-Württemberg under the responsibility of the Länder themselves. All the members of the Working Party completely agreed that the outcome of regionalisation is destined exclusively for the Länder , serves only internal purposes of their budgeting and financial planning and thus should not be made available to outsiders.
3. Timing of the meetings of the Working Party
The sequence of the meetings of the Working Party on Tax Revenue Estimates is geared to the schedules of budgetary and financial planning, particularly that of the federal government. There are two meetings a year.
At the start of November, a tax revenue forecast is made for the medium-term (the current year and the next five years). This estimate provides the final figures for expected tax receipts that will be entered into the following year's budget. The forecast is also used as a basis for starting work on the budget for the year after next and the financial plan.
- In mid-May, a second medium-term tax revenue estimate is conducted (for the current year and the following four years).
Its results form the basis for the draft budget of the following year and for the annual updating of the medium-term financial planning.
4. Significance for budgetary and financial planning
Ever since the Working Party has been in existence, the federal government has adopted the results for the tax revenue of the federation in the budget and, since 1968, in the medium-term financial planning.
The results of the tax estimates form part of the government’s financial projections, which it presents to the Stability Council.
The results of the regionalisation of the tax revenue for the Länder often require modification before they are adopted as tax revenue estimates in the budget or the financial planning of a Land . Important reasons for this can be a significant amount of time between the budget date and the date of the tax estimate, foreseeable special developments in the taxes or the economic development of the respective Land , allowance made for planned changes in tax law as well as differences between the financial equalisation between the Länder calculated on the basis of the tax estimate, on the one hand, and the implementation of the financial equalisation three months later, on the other.
Given the large number of local authorities (municipalities) in Germany, it is not possible to break down the results of the Working Group’s forecast for individual municipalities. However, the Central Associations of Local Authorities, which belong to the Working Party, supply the local authorities with information on revenue trends, for example regarding wage tax, assessed income tax, and the withholding tax on interest and capital gains, which can help provide points of orientation for the financial planning of the municipal treasurers. As regards local tax developments, in particular with trade tax, the local authorities are anyway better informed due to their immediate vicinity to the taxpayers.
5. Changes in tax law
As a rule, the Working party estimates tax revenue on the basis of current tax law. The fiscal impact of planned changes in tax law must additionally be taken into account in budgetary and financial planning.
The extra revenue or shortfalls projected in the tax law amendments or the drafts thereof always relate to the primary fiscal effects, i.e., the effects on the types of tax directly affected by the respective measure. However, as the various areas of the economy are interconnected, there are further effects on tax revenue which are not included in the calculation and are difficult to quantify individually (e.g., second-round effects, resultant changes in taxpayer behaviour, etc.). Such effects are taken into account at an aggregate level by means of a macroeconomic projection drawn up to reflect the changes in tax law.