Federal budget trends up to and including October 2020

Table: Trends in the federal budget

Actual 2019

2020 target1

Actual2
January–October 2020

Expenditure (€bn)3

343.2

508.5

334.4

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

 

 

+17.8

Revenue (€bn)4

356.5

290.4

245.3

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

 

 

-12.4

Tax revenue (€bn)

329.0

264.4

222.8

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

 

 

-13.3

Balance of pass-through funds (€bn)

0.0

0.0

0.0

Fiscal balance (€bn)

13.3

-218.1

-89.1

Financing/use of surplus:

-13.3

218.1

89.1

Cash resources (€bn)

-

-

6.5

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

82.4

Any discrepancies in totals are due to rounding.
1 Second supplement to the 2020 federal budget (Federal Law Gazette I No 35, p. 1669).
2 As per accounts.
3 With 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.
4 With the exception of revenue from loans on the credit market, withdrawals from reserves, revenue from cash surpluses and seigniorage. Excluding revenue from internal offsetting.
5 Negative 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 October 2020 totalled approximately €245.3bn, down by 12.4% (approximately €34.8bn) on the year. This decline is due primarily to the effects of the Covid-19 pandemic and the associated tax-related assistance measures that have been adopted to help manage the crisis. Tax receipts (including transfers of own resources to the EU) declined by 13.3% (roughly €34.2bn) compared with the first ten months of 2019. Receipts from value added taxes as well as from income and corporation tax have been particularly affected, falling by €18.5bn and €12.2bn, respectively.

The category of “other revenue” was down by 2.5% (roughly €0.6bn) on the year in the January–October period. This can be attributed to lower revenue from business activities as well as from claims arising from guarantees.

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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 the supplementary budgets now strongly influences the structure of federal spending. Expenditure in the first ten months of 2020 totalled €334.4bn, up by 17.8% (about €50.4bn) over the same period last year. A breakdown by economic category shows that the spending increase in the January–October period was due primarily to a year-on-year rise of 17.5% (approximately €45.1bn) in consumption spending. Ongoing subsidies to companies made up most of this rise. By the end of October 2020, approximately €14.5bn 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 €18.0bn earmarked for this purpose in the second supplementary budget. Of the additional €9.1bn budgeted for 2020 for ongoing grants to social institutions to fight the coronavirus, approximately €5.3bn have been spent. In addition, ongoing grants to public administrations were significantly higher than in the same period of 2019. This category includes roughly €9.0bn 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 €8.8bn (7.9%) 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 increase in consumption spending was tempered by a decline in interest expenditure, which was down by 59.5% (about €6.9bn) on the year.

Investment spending totalled approximately €31.2bn in the January–October period, an increase of 20.4% (roughly €5.3bn) over the same period last year. This was mainly due to liquidity assistance (totalling roughly €5.6bn so far this year) provided to the Federal Employment Agency. Over the January–October period, the category of grants and subsidies constituting investments was characterised by effects that practically cancelled each other out. On the one hand, grants for the Länder declined by approximately €3.5bn, primarily as a result of the discontinuation of compensation payments from the Federation to the Länder for purposes including social housing. This is part of 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. On the other hand, grants to special funds (for digital infrastructure and the expansion of childcare facilities) increased by a total of €1.4bn, and subsidies to other areas (including federal subsidies towards construction costs for maintaining railway infrastructure) rose by approximately €2.2bn on the year. In the January–October 2020 period, spending on the acquisition of movable assets was 16.6% (about €0.3bn) higher than in the same period last year. Spending on construction projects was slightly down on the year, by 3.5%.

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Fiscal balance

The federal budget recorded a deficit of €89.1bn for the period from January to October 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 October 2020

2020 trends in tax revenue (excluding local authority taxes)

Total tax revenue (excluding local authority taxes) was down by 8.8% in October 2020 compared with the same month last year. The economic effects of the coronavirus pandemic continued to have a negative impact on tax revenue. As in previous months, virus-related measures taken on the basis of secondary legislation also affected tax revenue. In October, incoming payments of previously deferred taxes exceeded the amount of newly granted deferrals, and this had a positive impact on revenue. As in the previous month, statutory measures to mitigate the effects of the coronavirus pandemic and to stimulate the economy led to considerable revenue losses in October. Two measures adopted as part of the Second Coronavirus Tax Assistance Act (Zweites Corona-Steuerhilfegesetz) played a particularly important role in this respect: First, the temporary cuts in VAT rates in the second half of 2020 led to a decline in VAT receipts. Second, the disbursement of the second (€100) instalments of a one-time bonus for families with children – which is financed from wages tax receipts – contributed significantly to a large decline in wages tax revenue in October.

In October 2020, receipts from joint taxes were down by 10.9% on the year. Revenue from taxes accruing solely to the Federation declined by 5.0%. In contrast, receipts from taxes accruing solely to the Länder was up by 7.7% on the year due to a sharp increase in receipts from inheritance tax.

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EU own resources

Transfers of own resources to the EU, including customs duties, totalled approximately €2.7bn in September 2020, up from €2.6bn in October 2019 (a year-on-year rise of 3.8%). 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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Overview of the January–October 2020 period

In the first ten months of 2020, total tax receipts fell by 8.1% on the year. Revenue from joint taxes declined by 9.5%, and revenue from taxes accruing solely to the Federation was down by 4.3%. Revenue from taxes accruing solely to the Länder posted a gain of 7.4%.

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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) fell by 18.4% on the year in October 2020. The Federation’s take from joint taxes declined by 19.5%. An amendment of the Financial Equalisation Act (Finanzausgleichsgesetz) under the Second Coronavirus Tax Assistance Act 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 reduction in the VAT rate. The reduction in the VAT rate caused revenue from value added taxes to fall significantly overall in October. In the end, the Federation’s take from VAT revenue in October was down by 28.6% on the year. Receipts from taxes accruing solely to the Federation fell by 5.0%. Moreover, supplementary federal grants to the Länder were up on the year, and own resources payments to the EU were significantly higher than in October 2019.

Länder tax receipts were down only slightly, by 1.5% on the year, due to the reallocation of VAT revenue described above, which led to an 8.4% increase in the VAT revenue received by the Länder. However, the fall in wages tax receipts (which is due to the short-time work scheme and the one-time bonus for families with children) and the discontinuation of the increased trade tax apportionment both significantly reduced Länder tax revenues. Overall, Länder receipts from joint taxes declined by 3.6%. The yield from taxes accruing solely to the Länder was up markedly on the year, by 7.7%. The revenue from joint taxes allocated to local authorities was down by 4.7% on the year.

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Joint taxes

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Wages tax

Cash receipts from wages tax posted a marked decline in October. Gross wages tax revenue actually recorded a slight year-on-year rise of 0.3%, despite companies’ ongoing use of the short-time work scheme. The primary reason for the sharp decline in cash receipts from wages tax (down by 10.6% on the year in October) was the increase in child benefit, which is financed from wages tax revenue. Child benefit payments surged by 49.1% on the year in October due to the disbursement of the second instalment of €100 of a one-time bonus for families with children (the first instalment of €200 was paid in September). In cumulative terms, cash receipts from wages tax were down by 5.2% on the year in the first ten months of 2020.

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Corporation tax

Gross revenue from corporation tax amounted to approximately €67m in October, generally a low-revenue month for this tax. In October 2019, there were refunds totalling €144m, meaning that this month’s result represents a slight increase on the year. Investment allowance payments hardly affected the overall result due to their low volume. Thus, cash receipts from corporation tax also amounted to approximately €67m. Cumulatively, cash receipts from corporation tax fell by 34.0% on the year in the first ten months of 2020.

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Assessed income tax

As with corporation tax, gross receipts from assessed income tax in October were determined mainly by assessment activity. Gross receipts from this tax declined to approximately €0.9bn, a drop of 24.4% on the year. Employee refunds were down by 7.2% on the year in October 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 ‑€234m in October 2020 (compared with ‑€32m in October 2019). In cumulative terms, cash receipts from assessed income tax were down by 9.6% on the year in the January–October period.

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Non-assessed taxes on earnings

October 2020 saw a 28.6% year-on-year rise in gross receipts from non-assessed taxes on earnings. Refunds by the Federal Central Tax Office, which are financed from this revenue, totalled about €196m. As a result, cash receipts from non-assessed taxes on earnings were up by 24.2% in year-on-year terms. Cumulatively, cash receipts from non-assessed taxes on earnings fell by 16.4% on the year in the first ten 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 fell by 10.3% on the year in October 2020. So far this year, monthly revenue from this tax has fluctuated significantly, as economic trends have apparently led investors to realise gains from their investments in securities. Cumulative cash receipts from final withholding tax on interest and capital gains recorded a year-on-year rise of 28.5% in the January–October 2020 period.

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Value added taxes

Receipts from value added taxes fell by 9.3% on the year in October, with declining receipts from both domestic VAT (down by 4.8%) and import VAT (down by 22.3%). This was a result of the temporary cuts in VAT rates in the second half of 2020, which showed up for the first time on government accounts in September. The resulting decline in revenue was only partially offset by the positive balance between newly granted deferrals and payments of deferred taxes that fell due. Cumulative cash receipts from value added taxes fell by 9.1% on the year in the January–October period.

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Taxes accruing to the Federation

In October 2020, revenue from taxes accruing solely to the Federation was down by 5.0% compared with 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 decline in revenue. October saw revenue gains for electricity duty (up by 11.0%), insurance tax (up by 2.3%) and motor vehicle tax (up by 6.1%). Receipts from energy duty and tobacco duty fell by 7.1% and 14.5%, respectively. Global air traffic came to an almost complete halt as a result of the shutdown in spring 2020. This, in combination with tax deferrals, caused aviation tax revenue to plummet by 79.3% on the year in October. Receipts from this tax recovered only slightly when restrictions were eased in the summer. Revenue from the solidarity surcharge recorded a slight rise of 0.6% as a result of higher receipts from income tax and corporation tax (which constitute its tax base). Trends in revenue from other taxes had only a minor impact on overall receipts from federal taxes. The cumulative take from federal taxes fell by 4.3% on the year in the first ten months of 2020.

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Taxes accruing to the Länder

Receipts from taxes accruing solely to the Länder were up by 7.7% on the year in October 2020. This was driven primarily by a significant increase in revenue from inheritance tax, which was up by 29.8%. Revenue gains were also recorded for beer duty (up by 16.5%), betting and lottery tax (up by 24.7%) and fire protection tax (up by 2.2%). Real property transfer tax posted a slight revenue decline of 3.1%. Cumulative receipts from Länder taxes rose by 7.4% on the year in the January–October 2020 period.

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Borrowing and guarantees

Borrowing trends for the Federation in October 2020

Debt trends for the federal budget and the Federation’s special funds October 2020

Trends in refinancing the special funds that provide loans to federal public institutions in October 2020

Guarantees

 

Authorised amount

Amount allocated
as of
30 September 2020

Amount allocated
as of
30 September 2019

in €bn

Export credit guarantees

160.0

125.6

119.0

Loans to foreign debtors, foreign direct investment, EIB loans

80.0

40.6

43.0

Financial cooperation projects

35.0

28.6

24.9

Food stockpiling

0.7

0.0

0.0

Domestic guarantees

430.0

273.2

104.8

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

December 2020 issue

November 2020

22 December 2020

January 2021 issue

December 2020

29 January 2021

February 2021 issue

January 2021

19 February 2021

March 2021 issue

February 2021

19 March 2021

April 2021 issue

March 2021

22 April 2021

May 2021 issue

April 2021

20 May 2021

June 2021 issue

May 2021

22 June 2021

July 2021 issue

June 2021

22 July 2021

August 2021 issue

July 2021

20 August 2021

September 2021 issue

August 2021

21 September 2021

October 2021 issue

September 2021

21 October 2021

November 2021 issue

October 2021

19 November 2021

December 2021 issue

November 2021

21 December 2021

1 In 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

21–22 November 2020

G20 summit with meeting of finance ministers and central bank governors in Riyadh, Saudi Arabia

30 November–1 December 2020

Eurogroup and ECOFIN Council meetings

18–19 January 2020

Eurogroup and ECOFIN Council meetings

15–16 February 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.