Enhanced levies imposed at the federal and local government levels
Tax earnings surged significantly in September, witnessing a nearly 7% rise compared to the same period last year, totaling over 86 billion euros, as mentioned by the Federal Ministry of Finance. August also saw an increase of over 5%, but this followed a dip in July. Due to the inconsistent economic landscape, tax earnings have been rather unpredictable this year.
In the initial nine months of the year, there was a 2.9% increase, resulting in total tax earnings of Bund and Länder amounting to nearly 626 billion euros. Experts anticipate an over 4% increase in total tax earnings for the entire year 2024, as per the upcoming tax forecast to be released on Thursday.
The Bund gathered a 7.1% rise in tax earnings in September, amounting to 37.6 billion euros. The Länder garnered 39.6 billion euros, marking an 8.2% increase. The Bund experienced a 4.0% rise from January to September, while the Länder witnessed a 3.3% increment.
The revenue from withholding tax on interest and capital gains continued its upswing in September, favoring public funds on account of the favorable market conditions. The growth in withholding tax was 90% on approximately 1.3 billion euros, and even a staggering 150% since the year's beginning. The widespread usage of tax-exempt allowances may also be a factor. "There was also a surge in revenues from turnover tax, income tax, and the assessed income tax," as per the monthly report. However, the revenues from corporate tax and non-assessed income tax reduced.
Lack of Economic Optimism
The Ministry of Finance does not foresee a robust economic recovery at present. "The short-term economic outlook continues to be gloomy," the monthly report mentions. The Ifo business climate index has dipped for the fourth consecutive month, with the institute attributing this to unfavorable developments in the primary sectors of the German industry. Pessimism in the service sector is now also spreading. According to the Gesellschaft für Konsumforschung, consumer sentiment in October will not descend further into pessimism.
The German government expects the GDP to decrease by 0.2% this year, signifying the second consecutive year of decline. In 2025, the economy is expected to expand by 1.1%, with growth speeding up to 1.6% in 2026. "This is based on the assumption that particularly private consumption will drive economic momentum due to the favorable income trends," the ministry stated.
However, the ministry has also noted that positive aspects, such as enhanced income prospects, have been counterbalanced by negative aspects such as the aftermath of geopolitical crises and rising employment insecurity in recent months.
In light of the economic turmoil, the German government is actively pursuing the implementation of an Economic and Monetary Union, aiming to strengthen financial stability and foster economic growth. Despite the positive impact of increased tax earnings on the budget, the Ministry of Finance remains cautious, citing the ongoing uncertainty and lack of Economic Optimism.
