Abstract of the Federal Ministry of Finance's Monthly Report August 2017

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1 Abstract of the Federal Ministry of Finance's

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3 Abstract of the Federal Ministry of Finance's

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5 Contents Federal budget trends up to and including July Trends in federal expenditure by function 8 Trends in federal expenditure by economic category 9 Trends in federal revenue 10 Trends in general government tax revenue 11 Tax revenue in July Federal borrowing and market resources 15 Guarantees 16 Publication schedule of the s 16 Key dates on the fiscal policy agenda 17 5

6 Federal budget trends up to and including July 2017 Trends in the federal budget Actual 2016 Estimated 2017 Actual 1 as of July 2017 Expenditure ( bn) Year-on-year change in % (year to date) +4.3 Revenue ( bn) Year-on-year change in % (year to date) +1.4 Tax revenue ( bn) Year-on-year change in % (year to date) +4.5 Fiscal balance ( bn) Financing/use of surplus: Cash resources ( bn) Seigniorage ( bn) reserve funds balance ( bn) Net borrowing/current financial market balance 3 ( bn) As per accounts. 2 Excluding revenue and expenditure from internal offsetting. 3 (-) debt repayment; (+) borrowing Source: Federal Ministry of Finance Revenue trends Federal revenue in the first seven months of 2017 stood at 183.7bn, up by 1.4% ( 2.5bn) over the same period last year. Tax receipts, which make up the largest share of total revenue, rose by 4.5%. Other revenue declined by 27.5%, mainly because allocations from the Bundesbank s profits were 2.1bn lower than envisaged in the 2017 budget. Expenditure trends Federal expenditure in the January July period totalled 192.1bn, up by 4.3% ( 8bn) on the year. Federal spending is separated into consumption and investment expenditure. Consumption expenditure was up by 4.1% in year-on-year terms. In particular, human resources spending saw an above-average increase of 5.4%. Ongoing grants for public administrations also climbed, posting a year-onyear rise of 6.2%. This was mainly due to a significant increase in ongoing grants to the Länder (up by 7.9% on the year). Spending on subsidies for other areas was higher than in 2016, especially in the areas of pensions and benefits (e.g. unemployment benefit and parental benefit, which were up by 6.3% and 6.6% respectively) and social security. Investment expenditure was up by 7.8% on the year in January July This can be attributed to an 17.4% rise in spending on fixed asset investment. Spending on federal financial assistance increased by 4.7% 6

7 compared with the same period last year, primarily driven by a 22.7% rise in loans and guarantees granted. Fiscal balance individual months. Net borrowing also tends to fluctuate considerably over the course of the year. This means that the fiscal balance at this point in the year and the corresponding net borrowing figures are not reliable indicators of the end-of-year fiscal balance and net borrowing figures. Expenditure exceeded revenue by 8.4bn in the first seven months of 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 7

8 Trends in federal expenditure by function Trends in federal expenditure by function Actual Estimated Actual January to July 2016 m Share in % m Share in % m January to July 2017 Year-onyear change in % (year to date) General public services 72, , ,276 41, Economic cooperation and development 7, , ,267 3, Defence 34, , ,432 19, Government, central administration 14, , ,684 9, Revenue administration 4, , ,451 2, Education, science, research, cultural affairs 21, , ,969 11, Support for school and university students and training programme participants Science, research and development outside of higher education institutions Social security, family and youth affairs, labour market policy Social insurance including unemployment insurance 3, , ,004 2, , , ,954 5, , , , , , , ,485 71, Labour market policy 34, , ,354 21, of which: Unemployment benefit II under Book II of the Social Code Unemployment Benefit II, government housing and heating allowances under Book II of the Social Code 20, , ,111 12, , , ,882 3, Family assistance, welfare services, etc. 8, , ,815 4, Social benefits for the consequences of war and political events 2, , ,241 1, Health, environment, sport, recreation 2, , , Housing, regional planning and local community services Housing, home ownership savings premium 2, , ,482 1, , , ,339 1, Food, agriculture and forestry , Energy and water supply, trade and services 4, , ,760 2, Regional support measures , Mining, manufacturing and construction 1, , ,488 1, Transport and communication 18, , ,708 9, Roads 8, , ,851 4, Railways and public transport 5, , ,644 2, Financial management 35, , ,062 20, Interest expenditure 17, , ,784 15, Total expenditure 1 310, , , , Excluding expenditure from internal offsetting. Source: Federal Ministry of Finance. 8

9 Trends in federal expenditure by economic category Trends in federal expenditure by economic category Actual Estimated Actual Year-onyear January to July 2016 m Share in % m Share in % m January to July 2017 change in % (year to date) Consumption expenditure 277, , , , Personnel expenditure 30, , ,235 19, Salary payments 22, , ,041 13, Pensions 8, , ,194 5, Current material expenditure 26, , ,233 13, Non-personnel expenditure 1, , Military procurement 9, , ,841 4, Other 14, , ,631 8, Interest expenditure 17, , ,781 15, Current grants and subsidies 202, , , , to public administration 23, , ,826 13, to other sectors 178, , , , including: Private enterprises 26, , ,303 15, Pensions, assistance etc. 28, , ,322 18, Social insurance funds 112, , ,310 74, Other asset transfers Investment expenditure 33, , ,285 15, Financial assistance 24, , ,809 11, Grants and subsidies 22, , ,961 10, Loans, guarantees 1, , Acquisition of holdings; capital contributions , Fixed asset investment 8, , ,476 4, Construction measures 6, , ,648 3, Acquisition of movable assets 1, , Acquisition of real property General reduction/increase in expenditure , X Total expenditure 1 310, , , , Excluding expenditure from internal offsetting. Source: Federal Ministry of Finance. 9

10 Trends in federal revenue Trends in federal revenue Actual Estimated Actual Year-onyear January to July 2016 m Share in % m Share in % m January to July 2017 change in % (year to date) I. Tax revenue 288, , , , Federal share of joint taxes: 235, , , , Revenue from personal and corporate income taxes (incl. final withholding tax on interest and capital gains)) of which: 127, , ,347 75, Wages tax 78, , ,485 45, Assessed income tax 22, , ,601 13, Non-assessed taxes on earnings 9, , ,604 6, Final withholding tax on interest and capital gains 2, , ,631 2, Corporation tax 13, , ,026 8, Value added taxes (VAT) 106, , ,181 65, Trade tax apportionment 1, , Energy duty 40, , ,846 18, Tobacco duty 14, , ,576 7, Solidarity surcharge 16, , ,530 10, Insurance tax 12, , ,869 9, Electricity duty 6, , ,746 4, Motor vehicle tax 8, , ,623 5, Nuclear fuel tax ,284 X Spirits duties 2, , ,210 1, Coffee duty 1, , Aviation tax 1, , Supplementary grants to Länder -9, , ,803-4, EU GNI own resources -19, , ,929-7, EU VAT own resources -4, , ,479-1, Grants to Länder for public transport -8, , ,321-4, Grants to Länder for motor vehicle tax and HGV toll -8, , ,496-4, II. Other revenue 27, , ,940 13, Revenue from economic activity 6, , ,610 2, Interest revenue Loan repayments, holdings, privatisation revenue 2, , , Total revenue 1 316, , , , Excluding revenue from internal offsetting. Source: Federal Ministry of Finance. 10

11 Trends in general government tax revenue Current-year trends in tax revenue (excluding local authority taxes) 1 Joint taxes 2017 July Year-onyear change January to July Year-onyear change 2017 estimates 4 Year-onyear change in m in % in m in % in m in % Wages tax 2 16, , , Assessed income tax -187 X 31, , Non-assessed taxes on earnings 4, , , Final withholding tax on interest and capital gains , , Corporation tax , , Value added taxes (VAT) 18, , , Trade tax apportionment , , Increased trade tax apportionment , , Total joint taxes 42, , , Federal taxes Energy duty 3, , , Tobacco duty 1, , , Spirits duty incl. alcopops duty , , Insurance tax , , Electricity duty , , Motor vehicle tax , , Aviation tax , Nuclear fuel duty 0 X -6,284 X 0 X Solidarity surcharge 1, , , Other federal taxes , Total federal taxes 8, , , Länder taxes Inheritance tax , , Real property transfer tax 1, , , Betting and lottery tax , , Beer duty Other Länder taxes Total Länder taxes 1, , , EU own resources Customs duty , , VAT-based own resources , , GNI-based own resources 1, , , Total EU own resources 2, , , Federation 3 22, , , Länder 3 24, , , EU 2, , , Local authorities share of income tax and value added tax Total tax revenue (excluding local authority taxes) 3, , , , , , Methodology: Total cash income from the various taxes is recorded and allocated to the various government levels as stipulated by law. Actual tax amounts collected in the current month by individual government levels may differ from target amounts due to technical reasons. ² After deduction of child benefit refunds by the Federal Central Tax Office. 3 After supplementary grants; any discrepancies with table on federal revenue are due to methodology used. 4 Source: Working Party on Tax Revenue Estimates, May

12 Tax revenue in July 2017 Total tax revenue (excluding local authority taxes) recorded a sharp year-on-year gain of 9.2% in July This is mainly due to a 9.9% rise in revenue from joint taxes, to which value added taxes, nonassessed taxes on earnings, and wages tax all contributed. However, the increase in receipts from value added taxes was skewed positively by a oneoff effect in July last year. Temporal shifts from June to July 2017 in revenue from non-assessed taxes on earnings should also be taken into account. A higher yield from energy duty and overstated revenues from tobacco duty (owing to baseline effects) resulted in a 7.6% increase in receipts from taxes accruing solely to the Federation. Revenues from taxes accruing solely to the Länder rose by 3.8%: the rise in receipts from real property transfer tax more than compensated for lower inheritance tax receipts. EU own resources Payments of own resources to the EU, including customs duties, fell by 3.7% in July 2017 compared with the same month last year. A substantial cumulative drop of 30.0% was registered for the January July period. Transfers have declined sharply this year as a result of (a) balances resulting from EU adjustments and amending budgets and (b) the implementation of the EU s new Own Resources Decision. Overall, it is anticipated that Germany s transfers of own resources to the EU will be lower this year than in The amount of the monthly transfers is determined by the EU s financing needs at any given time.. Overview of the January July 2017 period Total tax receipts increased by 3.8% on the year in the first seven months of This was driven mainly by a cumulative rise of 6.4% in revenue from joint taxes. Yields from taxes accruing solely to the Federation and from taxes accruing solely to the Länder, on the other hand, posted drops of 8.1% and 2.4% respectively. Distribution among the Federation, Länder and local authorities The Federation s tax receipts (after accounting for supplementary federal grants to the Länder) rose by 11.7% on the year in July This trend was driven by a marked 9.4% increase in the Federation s share of revenue from joint taxes as well as by the 7.6% rise in receipts from taxes accruing solely to the Federation. Lower supplementary federal grants to the Länder, which are shown as expenditures in the Federation s tax revenue calculations, also had a positive impact on the Federation s receipts. After accounting for supplementary federal grants, the Länder s tax receipts rose by 8.5%. This was driven by higher receipts from joint taxes (up 10.6%) and federal subsidies for public transport (up 12.7%) as well as by a slight increase in revenue from taxes accruing solely to the Länder (up 3.8%). The local authorities share of revenue from joint taxes was up by 8.7% on the year overall. Joint taxes Wages tax The upward trend in wages tax revenue seen in recent months continued in July 2017, albeit at a somewhat slower pace. Sustained positive employment trends and rising wages continue to have a favourable impact on wages tax revenue. The number of persons in employment rose by nearly 400,000 in the first half of Gross wages tax revenue climbed by 4.2% on the year in July Cash receipts from this tax increased by 4.7% after deducting child benefit payments, which are financed from wages tax revenue and rose by 2.1% on the year. In cumulative terms, cash receipts from 12

13 wages tax posted a 6.2% gain in the seven-month period from January to July Corporation tax The positive trend in corporation tax receipts continued. July is a low-yield month for corporation tax, so revenue was mainly generated from assessment activities. Prepayments of assessed income tax for preceding years increased, while back payments remained unchanged and refunds following completed audits rose. Overall, gross receipts from corporation tax fell by 37.1% to approximately 0.2bn. The deduction of investment allowance payments had only an insignificant impact on cash receipts. Total cash receipts from corporation tax over the January July 2017 period were up by 3.2%. However, a high volume of corporation tax refunds is still expected over the course of 2017 as a result of high court rulings (Federal Fiscal Court rulings on the STEKO case and section 40a of the Capital Investment Companies Act). Assessed income tax As with corporation tax, revenue trends from assessed income tax were driven by assessment activities. There were no significant changes in the balance between prepayments, back payments and refunds (excluding employee refunds). Gross receipts from assessed income tax saw a slight decline of about 0.1bn ( 6.4%) and stood at approximately 1.3bn. Refunds made to employees assessed for income tax dropped by 7.2%. Payments of investment allowance and owner-occupied homes premium now have only a slight impact on revenue from assessed income tax. On balance, cash receipts from assessed income tax remained unchanged at last year s level. On a cumulative basis, they rose by 15.9% on the year in the January July period. Non-assessed taxes on earnings Taxes on dividend distributions by corporations are the main source of revenue in the category of non-assessed taxes on earnings. Following a 50.4% decline in June, gross revenue from non-assessed taxes on earnings rose by 45.3% on the year in July. This is presumably a result of a June-to-July shift in the scheduling of dividend distributions. Refunds paid out by the Federal Central Tax Office, which are subtracted from revenue totals, were up by 7.0%. Overall, cash receipts from non-assessed taxes on earnings posted substantial year-on-year growth of 47.0% in July. Cumulative cash receipts from nonassessed taxes on earnings in the first seven months of 2017 were down by 1.6% on the year.. Final withholding tax on interest and capital gains Revenue from withholding tax on interest and capital gains posted a year-on-year gain of 11.7% in July 2017, continuing the positive trend seen in the last few months. Given the ongoing low interest-rate environment, this cannot be attributed to taxes on interest and is more likely to be linked to trends in capital gains. It is fair to assume that stock market trends have led many investors to realise profits by selling their shares, resulting in an increased yield from capital gains tax. However, no separate statistics are kept on the two revenue components, so it is not possible to provide reliable information on this question. In cumulative terms, revenue from final withholding tax on interest and capital gains rose by 23.7% on the year in the first seven months of Value added taxes Revenue from value added taxes posted a substantial increase of 9.5% in July Receipts from domestic VAT rose by 11.1%, while the yield from import VAT was up by 4.8%. Although the VAT result for July 2017 was skewed positively by a special case affecting last year s figure, the yield from value added taxes nevertheless recorded a considerable gain of 6.0% 13

14 after adjustment for this case. For the entire period from January to July 2017, value added tax revenue increased by 5.0%. Taxes accruing to the Federation Receipts from taxes accruing solely to the Federation were up by 7.6% on the year in July Revenue gains were posted for energy duty (+7.4%), tobacco duty (+68.8%), solidarity surcharge (+4.8%) and insurance tax (+1.7%), while revenue drops were registered for motor vehicle tax ( 6.5%) and electricity duty ( 2.8%). The increase in tobacco duty revenue is overstated as a result of a low baseline figure from Taken cumulatively, receipts from taxes accruing solely to the Federation dropped by 8.1% on the year in the first seven months of The reason for this decline is the Federal Constitutional Court s decision of 13 April 2017 (2 Bvl 6/13). The court ruled that the Nuclear Fuel Duty Act is unconstitutional and therefore null and void. Tax collected on the basis of this law was therefore paid back in June, and tax revenues took a 6.3bn hit as a result. Taxes accruing to the Länder Receipts from taxes accruing solely to the Länder were up by 3.8% on the year in July While revenue from real property transfer tax posted gains of 11.0%, inheritance tax receipts declined by 9.6%. Cumulative receipts from taxes accruing to the Länder in January July 2017 were 2.4% below last year s figure. This can be attributed to the fall in inheritance tax yields, which had benefited from several big inheritance cases in

15 Federal borrowing and market resources Debt trends for the Federation and its special funds Debt level: 30 June 2017 Borrowing (increase) Debt repayment (decrease) Debt level: 31 July 2017 Change in debt level (balance) Budget borrowing 1,086,688 12,289-20,804 1,078,173-8,515 broken down by purpose m Federal budget 1,045,644 12,286-20,804 1,037,126-8,518 Financial Market Stabilisation Fund 22, ,262-5 Investment and Redemption Fund 18, ,784 8 broken down by debt type m Federal securities 1,072,488 12,289-20,550 1,064,227-8,261 Federal bonds 686,873 5,603-19, ,476-13, year federal government bonds 199, , year federal government bonds 487,823 4,751-19, ,574-14,249 Inflation-linked federal securities 70, , year inflation-linked federal government bonds 5, , year inflation-linked federal government bonds 50, , Inflation-linked federal government debentures 14, , Federal notes 205,203 3, ,720 3,516 Federal Treasury notes 93, , Treasury discount papers issued by the Federation 14,431 2,146-1,509 15, Other federal securities 1, , Securitised loans 9, , Other loans and ordinary debts 4, ,475 - broken down by maturity m Short term (up to one year) 164, ,193 3,008 Medium term (one to four years) 320, ,011-2,173 Long term (over four years) 602, ,969-9,350 For information purposes only: m Liabilities resulting from inflation adjustments of inflationlinked securities Reserve for inflation adjustments of the principal of the inflation-linked securities according to Schlussfinanzierungsgesetz Discrepancies in totals are due to rounding. Source: Federal Ministry of Finance. 4,507 4, ,587 3,

16 Guarantees Guarantees Authorised amount Amount allocated as of 30 June 2017 Authorised amount as of 30 June 2016 Export credit guarantees bn Loans to foreign debtors, direct foreign investment, EIB loans Financial cooperation projects Food stockpiling Domestic guarantees International financial institutions Treuhandanstalt successor organisations Interest compensation guarantees Publication schedule of the s Publication schedule of the s Reporting period Publication date September September 2017 October 2017 September October 2017 November 2017 October November 2017 December 2017 November December

17 Key dates on the fiscal policy agenda Key dates on the fiscal policy agenda September 2017 Eurogroup and informal ECOFIN meetings in Tallinn, Estonia 9-10 October 2017 Eurogroup and ECOFIN Council meetings in Luxembourg October 2017 Meeting of G20 finance ministers and central bank governors in Washington D.C October 2017 Annual meetings of the IMF and World Bank in Washington, D.C. 6-7 November 2017 Eurogroup and ECOFIN Council meetings in Brussels 17

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