Federal budget trends up to and including July 2020

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Table: Trends in the federal budget

Actual 2019

2020 target1

Actual2

January–July 2020

Expenditure (€bn)3

343.2

508.5

234.9

Year-on-year change in % (year to date)

 

 

+17.1

Revenue (€bn)4

356.5

290.4

175.1

Year-on-year change in % (year to date)

 

 

-11.0

Tax revenue (€bn)

329.0

264.4

158.5

Year-on-year change in % (year to date)

 

 

-11.9

Balance of pass-through funds (€bn)

0.0

0.0

0.0

Fiscal balance (€bn)

13.3

-218.1

-59.7

Financing/use of surplus:

-13.3

218.1

59.7

Cash resources (€bn)

-

-

13.4

Seigniorage (€bn)

0.2

0.3

0.2

Movements in reserves5 (€bn)

-13.5

0.0

0.0

Net borrowing6 (€bn)

0.0

217.8

46.2

Any discrepancies in totals are due to rounding.

1Including second supplementary budget in accordance with the Act Adopting a Second Supplement to the Federal Budget for the 2020 Fiscal Year (Gesetz über die Feststellung eines Zweiten Nachtrags zum Bundeshaushaltsplan für das Haushaltsjahr 2020) of 14 July 2020 (Federal Law Gazette I No 35, p. 1669).

2As per accounts.

3With the exception of expenditure on the repayment of debt incurred on the credit market, allocations to reserves and expenditure made to cover a cash deficit. Excluding expenditure from internal offsetting.

4With the exception of revenue from loans on the credit market, withdrawals from reserves, revenue from cash surpluses and seigniorage. Excluding revenue from internal offsetting.

5Negative values denote accumulation of reserves.

6(-) debt repayment; (+) borrowing

Source: Federal Ministry of Finance

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Revenue

Federal revenue for the period from January to July 2020 totalled approximately €175.1bn, down by 11% (about €21.7bn) on the year. The consequences of the Covid-19 pandemic led in particular to a sharp decline in tax revenue compared with the same period in 2019. Tax receipts (including transfers of own resources to the EU) declined by 11.9% (roughly €21.3bn) compared with the first seven months of 2019. Receipts from value added taxes as well as from income tax and corporation tax have been particularly affected.

The category of “other revenue” was down by 1.9% (roughly €0.3bn) on the year in the January–July period. This can be attributed primarily to lower revenue from business activities. Profits from undertakings and holdings as well as allocations from the Institute for Federal Real Estate were down on the year.

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Expenditure

By adopting two supplementary budgets, the German government has taken decisive action in response to the challenges posed by the coronavirus pandemic both to health and to the economy. The additional expenditure contained in these two supplementary budgets now dominates the structure of federal spending. Expenditure in the first seven months of 2020 totalled €234.9bn, up by 17.1% (about €34.3bn) over the same period last year. A breakdown by economic category shows that the spending increase in the January–July period was primarily due to a year-on-year rise of 18.9% (approximately €34.7bn) in consumption spending. Ongoing subsidies to companies made up most of the increase. By the end of July 2020, approximately €14.6bn in immediate assistance for small companies and self-employed individuals affected by the fallout from the Covid-19 pandemic had been disbursed, out of the €18bn earmarked for this purpose. Approximately €3.8bn in additional funds for ongoing grants to social institutions to fight the coronavirus have been spent (2020 target: €9.1bn). In addition, ongoing grants to public administrations were significantly higher than in the same period of 2019. This category includes roughly €7.1bn in compensation payments under section 21 of the Hospital Financing Act (Krankenhausfinanzierungsgesetz), out of the €11.5bn earmarked for this purpose for 2020. Grants to social security funds were up by €7.8bn, or 9.8%, on the year. This includes disbursements to the health fund and the long-term care insurance compensation fund totalling €5.3bn, the entire amount earmarked for these funds. The rise in consumption spending was slowed by interest expenditure, which was 40.3% (about €4.4bn) lower than in the same period last year.

At approximately €16.7bn, investment spending was down slightly on the year. While fixed asset investment saw a substantial increase of 9.1%, investment grants up until July 2020 decreased due to a special factor: the compensation payments from the Federation to the Länder, for social housing among other things, have been discontinued due to a reorganisation of financial relations between the federal government and the Länder that took effect at the start of 2020. Instead of receiving compensation payments, the Länder now receive a higher share of VAT revenue. In the January–July 2020 period, year-on-year spending increases were recorded for the acquisition of movable assets (up by 32%, or approximately €0.3bn) and for construction projects (up by 5%, or approximately €0.2bn).

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Fiscal balance

The federal budget recorded a deficit of €59.7bn for the period from January to July 2020.

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 the case in the current circumstances.

Trends in federal expenditure by function

Trends in federal expenditure by economic category

Trends in federal revenue

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Tax revenue in July 2020

2020 trends in tax revenue (excluding local authority taxes)

Total tax revenue (excluding local authority taxes) in July 2020 recorded a slight decline of 0.3% on the year. The economic effects of the coronavirus pandemic continued to have a significant negative impact on tax revenue. Wages tax receipts were down substantially. The tax measures introduced to mitigate the effects of the crisis also had a significant impact on tax revenue. The objective of these measures is above all to quickly provide liquidity for taxpayers affected by the crisis. The measures included tax deferrals, and a significant number of taxpayers availed themselves of this option in July 2020 and in the preceding months. The Länder tax authorities generally granted deferrals for a period of three months. This meant that tax payments that were deferred in April fell due in July. The volume of deferrals for the three categories of joint taxes affected (value added taxes, assessed income tax and corporation tax) was significantly lower in July than in April, resulting in an increase in receipts from these taxes on balance. The yield from non-assessed taxes on earnings was also up on the year. Overall, receipts from joint taxes remained basically unchanged. Revenue from taxes accruing solely to the Federation declined by 3.4% in July 2020. In contrast, receipts from taxes accruing solely to the Länder rose by 9.1%.

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EU own resources

Transfers of own resources to the EU, including customs duties, totalled approximately €1.7bn in July 2020, a year-on-year drop of 34.7%. Monthly fluctuations occur over the course of the year based on the EU’s financing needs at any given time. However, monthly requisitions are generally in line with the financial framework for the current year.

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Cumulative overview of the January–July 2020 period

In the seven months from January to July 2020, total tax receipts dropped by 8.0% on the year. Revenue from joint taxes declined by approximately 9.2% and revenue from federal taxes declined by approximately 4.8%. Revenue from taxes accruing solely to the Länder posted an increase of 8.9%.

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Distribution among the Federation, Länder and local authorities

The Federation’s tax receipts (after accounting for supplementary federal grants to the Länder) declined by 2.5% on the year in July 2020. The Federation’s take from its share of joint taxes declined by 6.5%. An amendment of the Financial Equalisation Act (Finanzausgleichsgesetz) under the Second Coronavirus Tax Assistance Act (Zweites Corona-Steuerhilfegesetz) reduced the Federation’s share of revenue from value added taxes and increased the shares of the Länder and local authorities accordingly. The purpose of this was to compensate the Länder for their lower tax revenue resulting from (a) the one-time bonus for families with children, which is financed from wages tax revenue, and (b) the temporary VAT reduction. Consequently, the Federation’s take from VAT revenue was 13.9% lower than in July 2019. Revenue from taxes that accrue solely to the Federation fell by 3.4%. However, supplementary federal grants to the Länder were down on the year, and own resources payments to the EU were significantly lower than in July 2019.

In contrast, Länder tax receipts recorded a clear increase of 4.7% on the year in July 2020. This was due to the change in VAT revenue distribution mentioned above, which increased the VAT revenue allocated to the Länder (up by 22.4%) and, as a result, their take from joint taxes (up by 5.7%). In addition, receipts from taxes that accrue only to the Länder were also up, by 9.1%. Local authorities’ take from their share of joint taxes was up by 3.6%, partly as a result of the Second Coronavirus Tax Assistance Act.

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Joint taxes

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Wages tax

Wages tax receipts declined in July 2020, with gross revenue decreasing by 4.6% on the year. Following the start of the coronavirus pandemic, many companies took advantage of the government’s short-time work scheme. This significantly reduced the amount of gross wages and salaries subject to the deduction of wages tax. Child benefit payments, which are financed from wages tax receipts, posted a slight year-on-year increase of 0.4%. On balance, cash receipts from wages tax declined by 5.5% on the year in July 2020. In cumulative terms, cash receipts from wages tax were down by 1.8% on the year in the January–July period.

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Corporation tax

Approximately €262m in corporation tax refunds were paid out in July, which is generally a low-revenue month for this tax. In July 2019, the corresponding amount was €38m. Year-on-year tax revenue fluctuations of this kind are common. The measures taken in response to the coronavirus pandemic continue to affect tax revenue significantly. However, the volume of deferrals granted in July was lower than the volume of previously granted deferrals that fell due in July, which stabilised the corporation tax revenue trend. Due to their low volume, investment allowance payments had hardly any influence on receipts. On a cumulative basis, cash receipts from corporation tax fell by 38.6% on the year in January–July 2020.

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Assessed income tax

Revenue from assessed income tax in July was also mainly generated from assessment activities. Gross receipts from this tax increased by 34.3% to approximately €1.4bn. As with corporation tax, the difference between newly granted deferrals and deferrals that became due in July resulted in a positive revenue figure for assessed income tax. Employee refunds were down by 1.8% on the year in July 2020. After these are subtracted from the gross figure (along with investment allowance payments and owner-occupied homes premiums, which are insignificant in terms of amount), receipts from assessed income tax stood at approximately ‑€0.2bn in July 2020 (compared with ‑€0.6bn in July 2019). In cumulative terms, cash receipts from assessed income tax were down by 11.5% on the year in the January–July period.

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Non-assessed taxes on earnings

Gross receipts from non-assessed taxes on earnings rose by 41.8% on the year in July 2020, following a decline of 61.8% in the previous month. Due to restrictions caused by the coronavirus pandemic, many shareholders’ meetings at which dividend payouts for 2019 would have been decided, were postponed. This resulted in a significant drop in receipts from non-assessed taxes on earnings in April–June 2020. This drop will be partially compensated for over the rest of the year by correspondingly higher receipts. However, the current economic situation will undoubtedly mean that some companies will have to reduce this year’s dividend payouts, so that overall, a drop in revenue compared to last year is to be expected. Refunds by the Federal Central Tax Office, which are financed from this revenue, totalled about €121m. As a result, cash receipts from non-assessed taxes on earnings were up by 41.7% on the year. Cumulative cash receipts from non-assessed taxes on earnings were down by 19.0% on the year in the first seven months of 2020.

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Final withholding tax on interest and capital gains

Revenue from final withholding tax on interest and capital gains posted a substantial year-on-year rise of 40.5% in July 2020. Thanks to the revenue increases recorded over the course of the year to date, cumulative cash receipts from final withholding tax on interest and capital gains were up by 36.3% on the year in January–July 2020.

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Value added taxes (VAT)

Receipts from value added taxes rose by 4.9% on the year in July 2020. Declines in domestic VAT revenue had been recorded in previous months, partly as a result of extensive deferrals in connection with the coronavirus pandemic. Since most of these deferrals were granted for a period of three months, a substantial volume of taxes that had been deferred in April fell due in July. The volume of deferrals granted in April significantly exceeded the volume of deferrals granted in July (with the difference totalling approximately €1.8bn), resulting in a significant rise of 9.9% in VAT receipts. In contrast, import VAT revenue dropped by 10.8%. Cumulative cash receipts from value added taxes declined by 10.3% on the year in January–July 2020.

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Taxes accruing to the Federation

In July 2020, revenue from taxes accruing solely to the Federation was 3.4% lower than in the same month last year. In the case of some taxes, the tax measures that were introduced to improve the liquidity of companies resulted in a significant decline in revenue. In the case of energy duty, reduced consumption of fuel as a result of the crisis was also responsible for the sharp 10.8% decline in receipts. Revenue also dropped for electricity duty (down by 10.8%) and alcohol duty (down by 15.2%). Global air traffic ground to an almost complete halt as a result of the lockdown. This, in combination with the granted tax deferrals, led to a 91.9% collapse in aviation tax revenue. Receipts from the solidarity surcharge declined by 2.8% as a result of drops in revenues from income and corporation tax (which constitute its tax base). The noticeable 15.9% increase in revenue from tobacco duty is attributable in part to an increase in purchases of excise stamps for tobacco products, but also to a shift in revenue for technical reasons, because part of the tax revenue from June was posted in July 2020. Further revenue increases were recorded for insurance tax (up by 4.0%) and motor vehicle tax (up by 4.9%). Trends in revenue from other taxes had only a minor impact on the overall results for federal taxes.

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Taxes accruing to the Länder

Revenue from taxes accruing solely to the Länder increased by 9.1% on the year in July 2020. This was driven by a surge in revenue from inheritance tax, which was up by 32.3%. The higher receipts from inheritance tax recorded in the last three months are primarily attributable to the clearing of processing backlogs by the revenue administration. Receipts from property transfer tax and fire protection tax posted slight declines of 0.2% and 2.6%, respectively. Yields from betting and lottery tax increased by 11.8% on the year. Partly as a result of tax deferrals, receipts from beer tax fell by 8.8% on the year.

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Borrowing and guarantees

Debt trends for the Federation (budget and special funds) in July 2020

Trends in refinancing the special funds for providing loans to public institutions of the Federation in July 2020

Borrowing trends for the Federation in July 2020

Guarantees

 

Authorised amount

Amount allocated
as of
30 June 2020

Amount allocated
as of
30 June 2019

in €bn

Export credit guarantees

160.0

124.7

119.0

Loans to foreign debtors, foreign direct investment, EIB loans

80.0

41.7

44.5

Financial cooperation projects

35.0

26.5

23.5

Food stockpiling

0.7

0.0

0.0

Domestic guarantees

430.0

274.3

105.4

International financial institutions

100.0

68.6

60.1

Treuhandanstalt successor organisations

1.0

1.0

1.0

Interest compensation guarantees

15.0

15.0

15.0

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Calendar

Publication schedule1 of the monthly reports

Monthly report

Reporting period

Publication date

September 2020 issue

August 2020

22 September 2020

October 2020 issue

September 2020

22 October 2020

November 2020 issue

October 2020

20 November 2020

December 2020 issue

November 2020

22 December 2020

1In accordance with the IMF’s Special Data Dissemination Standard Plus (SDDS Plus); see http://dsbb.imf.org

Source: Federal Ministry of Finance

Key dates on the fiscal and economic policy agenda

24–25 August 2020

Meeting of the finance ministers of Germany, Austria, Switzerland, Luxembourg and Liechtenstein in Vienna

11–12 September 2020

Eurogroup and informal ECOFIN Council meetings in Berlin

5–6 October 2020

Eurogroup and ECOFIN Council meetings

15–16 October 2020

Meeting of G20 finance ministers and central bank governors in Washington, D.C.

16–18 October 2020

Annual meeting of the IMF and World Bank

3–4 November 2020

Eurogroup and ECOFIN Council meetings

21–22 November 2020

Meeting of G20 finance ministers and central bank governors in Riyadh, Saudi Arabia

30 November–1 December 2020

Eurogroup and ECOFIN Council meetings

Due to the coronavirus pandemic, dates and the format of meetings will be specified at short notice prior to the respective meetings.