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Public finances Monthly Report – February 2025

Article from the Monthly Report

1 General government budget
1
The section entitled “General government budget” refers to data from the national accounts and Maastricht debt. This is followed by reporting on budgetary developments (government finance statistics) in the areas for which data are available for 2024.

1.1 2024 result and outlook

According to the preliminary data from January, the general government deficit ratio remained unchanged at 2.6 % in 2024. On the one hand, substantial temporary burdens from the energy price brakes were now absent, in contrast to the previous year. On the other hand, the fact that some expenditure increased steeply (mainly social security funds’ expenses, but also spending on interest, personnel, the promotion of green electricity production under the Renewable Energy Sources Act and the armed forces) made the deficit higher. The structural deficit ratio rose substantially on the year to around 2 % (see the supplementary information entitled The structural development of Germany’s government budget in 2024).  

Supplementary information

The structural development of Germany’s government budget in 2024

Germany’s government budget closed 2024 with a deficit of 2.6 % of GDP

, matching the deficit recorded for 2023 (item 1 in Table 5.1). This supplementary information takes a closer look at 2024. For this purpose, the deficit, revenue and expenditure are broken down into temporary and structural components. Temporary influences include economic activity, crisis measures and other specific one-off effects. The Bundesbank uses its own analytical methods and estimates, which means that its structural balances differ from those of other institutions.
1
See Deutsche Bundesbank (2006).
 

General government fiscal ratios

Cyclical developments moderately increased the deficit ratio in 2024 compared with 2023 (item 2). The fact that cyclical developments were weaker overall weighed only moderately on the government budget, mainly because of continued dynamic growth in wages and salaries. Wage tax and social contributions remained correspondingly stable and largely offset the cyclical burdens caused, for example, by higher spending on unemployment.

Temporary crisis measures declined sharply, providing significant relief to the government budget (included in item 3). Viewed in isolation, the deficit ratio thus fell by just over 1 percentage point. The most significant factor was the absence of the previous burdens caused by the energy price brakes. In addition, VAT

 rates on food in restaurants, natural gas and district heating increased again following temporary crisis-related cuts. Revenue shortfalls due to the tax and social contribution-exempt inflation compensation bonuses are likely to have remained roughly unchanged compared with the previous year. The associated shortfalls may have amounted to around ½ % of GDP in both 2023 and 2024.
2
A non-crisis-based court ruling had a one-off negative impact on the balance (included in item 3): in March 2024, the Federal Fiscal Court ruled that foreign investment funds that invested in German enterprises had been unlawfully subject to capital gains tax in the past. As a result of this ruling, the government has to reimburse capital gains tax. The national accounts booked the total expected tax reimbursements of just under ¼ % of GDP as a capital transfer made in full in 2024. In general, the national accounts record such payments resulting from court rulings on the expenditure side in the year when the ruling is pronounced.

The structural deficit ratio saw a significant rise of almost 1 percentage point (item 4), reaching just over 2 %. The expenditure ratio (item 5 plus item 11) experienced a considerably stronger increase than the revenue ratio (item 7).

3
Here and in the remainder of the supplementary information, all statements refer to structural developments.
 The rise in the expenditure ratio was also related to the high inflation of the previous years, to which major expenditure items were still responding with a time lag. At the same time, growth in nominal trend GDP in the denominator of the ratio (item 20 plus item 21) was significantly weaker than in the previous year due to the fall in inflation.
4
While nominal expenditure expanded at a slower pace in 2024 than in 2023, the ratio experienced a stronger increase in 2024 because the GDP deflator in the denominator (item 21) saw significantly smaller growth than in the previous year.

The increase in the structural expenditure ratio was primarily due to the sharp rise in social payments (item 12). Pension expenditure, in particular, rose steeply owing to the high wage increases of the two preceding years and a growing number of pension recipients. Expenditure on healthcare and long-term care also went up significantly, partly because inflation had a lagged impact. The interest expenditure ratio rose sharply (item 5), as refinancing costs increased despite central government having to spend less on inflation-indexed debt instruments (item 5.1). Nevertheless, at just over 1 %, the interest expenditure ratio remained low by longer-term standards. The ratio for staff expenditure (compensation of employees) increased somewhat. This was mainly due to the substantial wage adjustments (item 14). Furthermore, the ratio for subsidies rose a little (item 13), as green electricity (EEG

) subsidies, in particular, grew markedly. 

The structural revenue ratio increased owing to the rise in contribution rates to the social security funds. Contribution rates to the health and long-term care insurance schemes saw a distinct rise (a combined increase of almost 0.5 percentage point), which raised the ratio for social contributions (item 9). Furthermore, the ratio for other revenue increased significantly (item 10). The ratio for taxes and social contributions remained constant (item 8). Fiscal drag (item 8.1) and tax cuts (item 8.3) largely balanced each other out. 

Table 5.1: Structural development of the government budget 1
Year-on-year change in the ratio to trend GDP

 in percentage points

Item2020202120222023202422024 in relation to 2019
1 Unadjusted fiscal balance3

- 5.7

1.2

1.0

- 0.4

- 0.1

- 4.0

2 Cyclical component3

- 2.1

0.6

0.5

0.1

- 0.1

- 1.0

3 Special temporary effects3

- 2.7

- 0.4

0.2

1.2

0.9

- 0.7

4 Fiscal balance

- 1.0

1.1

0.3

- 1.8

- 0.9

- 2.2

5 Interest payable4

- 0.2

0.0

0.1

0.2

0.2

0.2

5.1 due to change in average interest rate

- 0.2

- 0.1

0.1

0.2

0.2

0.2

5.2 due to change in debt level

0.0

0.0

0.0

0.0

0.0

0.0

6 Primary balance

- 1.1

1.0

0.5

- 1.6

- 0.7

- 2.0

7 Revenue

- 0.2

1.0

- 0.2

- 1.0

0.4

0.0

8 Taxes and social contributions

0.2

0.7

- 0.2

- 1.4

0.0

- 0.8

8.1 Fiscal drag5

0.1

0.1

0.2

0.3

0.2

0.9

8.2 Decoupling of macroeconomic reference variables from GDP

0.0

0.0

- 0.1

- 0.1

0.0

- 0.2

8.3 Legislative changes

- 0.2

- 0.7

- 0.7

- 0.7

- 0.2

- 2.5

8.4 Residual

0.2

1.3

0.3

- 0.9

0.1

1.1

9 Social contributions

- 0.1

0.2

0.2

0.1

0.2

0.7

10 Other revenue6

- 0.2

0.2

- 0.2

0.3

0.2

0.2

11 Primary expenditure

1.0

0.0

- 0.7

0.6

1.1

2.0

12 Social payments

0.1

0.3

- 0.3

- 0.2

0.8

0.8

13 Subsidies

0.4

- 0.4

- 0.3

0.1

0.1

- 0.2

14 Compensation of employees

0.1

0.0

- 0.2

- 0.1

0.1

- 0.1

15 Intermediate consumption

0.2

- 0.1

- 0.1

0.6

0.1

0.6

16 Gross fixed capital formation

0.2

- 0.1

0.0

0.0

0.0

0.1

17 Capital transfers

0.0

0.1

0.4

0.3

0.0

0.9

18 Other expenditure7

0.1

0.2

- 0.1

- 0.2

- 0.1

- 0.2

Memo items: 
20 Real trend GDP8

0.8

0.7

0.6

0.6

0.5

3.3

21 GDP deflator8

1.8

2.8

6.1

6.1

3.1

21.5

1 The structural figures are derived by adjusting for cyclical influences and special temporary effects. 2 The explanatory text of the supplementary information refers to this year. 3 Change in the ratio to GDP compared with previous year. 4 2024 breakdown estimated, as end-year debt level is not yet available. 5 The term “fiscal drag” encompasses the positive revenue effect of bracket creep in income taxation and the negative impact of the fact that specific excise duties are largely independent of prices. 6 Other current transfers receivable, sales and total capital revenue (excluding capital taxes). 7 Other current transfers payable, other net acquisitions of non-financial assets. 8 Year-on-year percentage change.

 

Despite the relatively high deficit, the debt ratio is likely to have fallen moderately in 2024. For one thing, factors that did not affect the deficit had a debt-reducing impact (negative deficit-debt adjustments). For instance, enterprises repaid government assistance loans granted during the coronavirus and energy crises, transfers from emergency borrowing appear to have been repaid within the government sector, and central government continued to scale back its portfolios from the financial crisis. Due to these factors, central government was able to repay debts. For another thing, the rise in debt is lower than the deficit, as the social security funds financed their deficit from reserves rather than taking out new loans. Results for the debt ratio are available up to the end of the third quarter of 2024: by then, it had fallen to 62.4 % (end-2023: 62.9 %).

With fiscal policy as it currently stands, the deficit ratio would probably remain relatively high over the next two years (see Chart 5.1 and Deutsche Bundesbank (2024a) Outlook for public finances

2
See Deutsche Bundesbank (2024a), Chapter 2 Outlook for public finances.
). However, price pressures are easing and climate-related spending could stabilise. Although expenditure on health, long-term care and pension insurance will probably continue to grow significantly, this will be partly offset by additional revenue from higher contribution rates. Defence spending appears to have reached the NATO investment guideline of 2 % of GDP in 2024. However, considerably higher levels and expanded scope for associated borrowing are now under discussion. The relatively high deficit will also slow down the decline in the debt ratio resulting from nominal GDP growth and further negative deficit-debt adjustments.

1.2 Address structural weaknesses, safeguard sound public finances

Policymakers face the challenge of addressing structural weaknesses and, at the same time, safeguarding sound public finances in Germany. The national and EU

 fiscal rules are aimed at achieving a low structural deficit.
3
 The requirements for Germany under the EU fiscal rules are not yet known. Assessments carried out in June 2024 signalled a certain need for consolidation; see Darvas et al. (2024). For information on central government finances, see Chapter 2.2 Central government finances. 
 At the same time, action is required: in the area of public infrastructure and the sustainable financing of the defence budget, for instance. The tax burden and expenditure ratios are already relatively high, and demographic developments will put an additional strain on public finances. 

In the attempt to reconcile these aims, binding fiscal rules have a crucial role to play in safeguarding sound public finances. Sound public finances are not an end in themselves, but rather a prerequisite for a beneficial economic framework and a government that is able to act even in times of crisis. They also facilitate price stability-oriented monetary policy, as well as making favourable financing conditions and low interest burdens possible. This can be roughly illustrated with a back of the envelope calculation: in Germany, the debt ratio stands at 62½ % and the average rate of interest is 1.7 %. Applying the corresponding parameters of the rest of the euro area (100 % and 2.3 %), government interest expenditure in Germany would be around €50 billion or 1¼ % of GDP

 higher than at present. 

In principle, however, provided that the government debt ratio is low, adjusting the requirements of the current debt brake in line with changing conditions seems justifiable. That said, higher upper limits must be reliably binding and conducive to sound public finances. The Bundesbank had already submitted reform proposals with this fundamental objective at an earlier point in time (see Deutsche Bundesbank (2022a), and is currently in the process of updating these. The 60 % limit for the debt ratio remains pivotal here. With this anchor, which is also enshrined in the European rules, additional scope for borrowing could help to tackle the current challenges. Even then, though, it would still be crucial for government to better calibrate fiscal policy as a whole to the concrete challenges at hand. In general, priorities on both the expenditure and revenue side need to be reviewed and financial resources used more effectively. It is also important to have a focused administration that makes decisions quickly and without excessive requirements and makes better use of the opportunities afforded by digitalisation. 

Supplementary information

New EU fiscal rules applied for the first time

National fiscal plans, budgetary plans and excessive deficit procedures

The EU

's new fiscal rules, which came into force at the end of April 2024, have been applied for the first time over the past few months in the assessment of medium-term fiscal-structural plans submitted by the EU Member States. To date, 22 of the 27 Member States have submitted their fiscal plans.

The fiscal plans include, in particular, ceilings on net primary expenditure growth,

1
Net primary expenditure is government expenditure net of: (i) interest expenditure; (ii) expenditure on programmes of the Union fully matched by Union funds revenue; (iii) national expenditure on co-financing of programmes funded by the Union; (iv) cyclical elements of unemployment benefit expenditure. Moreover, additional receipts or shortfalls in revenue resulting from discretionary revenue measures are added or deducted: for example, tax increases to finance additional expenditure are not taken into account in the net expenditure path.
 which are designed to ensure that the deficit and debt targets set out in the EU rules are met. These expenditure ceilings are the cornerstone on which future budgetary surveillance will be based. The Member States negotiate their national fiscal plans with the European Commission on the basis of a reference trajectory set by the Commission. The adjustment period agreed as part of this can be extended from four to up to seven years if the Member States make appropriate reform and investment commitments. The fiscal plans are required to meet certain requirements with regard to the reduction of debt and deficit ratios. The resulting ceilings on the growth rate of net primary expenditure are a key element in budgetary surveillance during the adjustment period. 

The Council of the European Union adopted the Commission’s recommendations regarding the fiscal plans in January.

2
See Council of the European Union (2025a). In the case of Hungary, it was only in January that the Commission made a recommendation to the Council to endorse the country’s plan. The Council followed this recommendation in February.
 One part of the Commission’s Autumn Package involved assessing the submitted fiscal plans and making recommendations to the Council.
3
See European Commission (2024a).
 

  • The Commission found that all but one of the fiscal plans submitted met the fiscal framework requirements. For 16 euro area and five non-euro area countries, it recommended that the Council endorse the expenditure ceilings set out in the respective fiscal plans. In a number of cases, the planned expenditure growth is higher than recommended by the Commission in its reference trajectories. Nevertheless, the Commission considered the expenditure ceilings to be adequate to achieve a “credible fiscal path to ensure fiscal sustainability over the medium term”. According to the Commission, only the Dutch fiscal plan failed to meet the requirements set out in the new rules.
    4
    In the Commission’s opinion, the target for the structural primary balance was insufficient to keep the debt ratio below the 60 % reference value over the medium term.
     The Dutch government waived its right to submit a revised plan. Consequently, the Council, acting on a recommendation by the Commission, set expenditure ceilings for the Netherlands.
    5
    Given that the initial debt ratio and deficit ratio of the Netherlands were below 60 % and 3 %, respectively, the Commission issued technical information at the country’s request. As with the usual reference trajectory, it also includes a net expenditure path. Lithuania’s ratios are also below the two reference values. To date, the Commission has not issued any technical information for Lithuania.
     
  • Five countries requested that the adjustment period of their plans be extended from four to seven years, thus enabling them to stagger their consolidation efforts (Finland, France, Italy, Romania and Spain). In all cases, the Commission found that the conditions for extending the adjustment period had been met. As agreed, these are less ambitious for the initial plans following the implementation of reforms than for future plans. 
  • At the time the Council issued its recommendations, five EU Member States had not yet submitted a fiscal plan (Belgium, Bulgaria, Germany, Lithuania and Austria). In this case, the rules actually stipulate that the Commission recommend its own reference trajectory to the Council, but this did not happen. Instead, the Commission granted these Member States more time to submit their plans.

In addition to the fiscal plans agreed, the Commission’s Autumn Package included other budgetary surveillance elements. 

  • The Commission reviewed the draft budgetary plans for 2025 submitted by the euro area countries.
    6
    See European Commission (2024b).
     Of the 17 plans submitted, nine, including Germany’s, are not fully in line with the country-specific recommendations. To this end, the Commission assessed, inter alia, whether the plans were in line with the agreed expenditure ceilings (or those set by the Commission).
    7
    For Germany, the benchmark is the Commission’s reference trajectory; for the Netherlands, technical information; and for Lithuania, a country-specific recommendation.
     This is not the case for the Netherlands. An additional five Member States are only partially in line with this criterion (Germany, Estonia, Finland, Ireland) or are at risk of not being in line with it (Lithuania). In three Member States, the plans are not fully in line with the recommendations owing to energy emergency support measures not being wound down as recommended (Luxembourg, Malta, Portugal). Three Member States did not submit a budgetary plan for 2025 (Belgium, Spain, Austria). 
  • The Council granted deadlines, some of them extensive, to countries under an excessive deficit procedure to correct their deficits.
    8
    See Council of the European Union (2025b). 
     In July 2024, the Council, acting on a recommendation by the Commission, opened an excessive deficit procedure for five euro area countries (Belgium, France, Italy, Malta and Slovakia). The corrective paths recommended in the Council Decision of January 2025 correspond to the fiscal plans, where these had been submitted. Since Belgium had not yet submitted a fiscal plan, the Commission recommended to the Council that it apply its updated reference trajectory as the corrective path. However, the Commission has yet to publish its reference trajectory for Belgium. Ultimately, Italy’s deficit is set to fall below 3 % of GDP in 2026, with Belgium, Malta and Slovakia following suit in 2027, and France as late as 2029. 
  • The Commission also considered opening excessive deficit procedures for Austria and Finland, but did not make any recommendations.
    9
    See European Commission (2024c). 
     With regard to Austria, however, it intends to review the situation again in the spring. The projected deficit ratio in both these countries is likely to be well above the 3 % reference value in 2024. As early as in the autumn, the Commission proposed to the Council that it should not open an excessive deficit procedure for Finland, based on its forecast that the deficit ratio would fall back below 3 % in 2025. It postponed the decision on Austria. It gave Austria the option of taking further measures to cut its deficit to under 3 % in 2025. In response, the caretaker government sent a proposed set of measures agreed by the parties involved in the coalition negotiations to the Commission in January. The Commission deemed the proposed measures to be appropriate and proposed to the Council that an excessive deficit procedure should not be opened for Austria for the time being, though it announced that it would review the case in the spring. However, the coalition negotiations broke down in mid-February.

In spring 2025, the Commission will assess whether Member States are implementing the fiscal plans adequately and whether countries under an excessive deficit procedure have adopted effective measures. The Member States submit a progress report each spring. The Commission will not assess Member States’ compliance with the 2025 expenditure ceilings until spring 2026. Any deviations from the agreed path will be recorded in a control account. If a threshold is exceeded, the Commission is required to assess whether it should recommend that the Council open an excessive deficit procedure.

10
The Council can open a procedure if the control account exceeds the threshold and, at the same time, the debt ratio rises above the 60 % reference value. The procedure does not then require the deficit ratio to exceed 3 %. In this case, a procedure is opened because the debt criterion has not been met.
 With regard to the excessive deficit procedure, the Council has yet to determine the criteria for assessing whether a country has taken effective action. If countries under an excessive deficit procedure fail to take adequate action, sanctions may be imposed.

Assessment

In order to be able to verify whether the rules are applied in line with the intended objectives, the underlying assumptions must be presented in a comprehensive and clear manner. Currently, this is only the case to a certain extent. For example, the Commission provides no information on how the structural balances should move in line with the recommended expenditure ceilings. However, changes in these balances are key to assessing the development of government finances. It would be helpful if the Commission provided an overview of this and of the target structural primary balance ratios and debt ratios. To make it easier to compare the fiscal plans, it would also be useful to have a corresponding overview based on the Commission’s macroeconomic assumptions. This would require converting the annual expenditure ceilings consistently for all countries into structural (primary) balance ratios using the Commission’s assumptions. 

The use of net primary expenditure as the main control variable requires transparency to ensure that the rules are applied in a comprehensible and targeted manner. On the face of it, the approach of taking net primary expenditure as the key indicator for compliance with the rules seems relatively straightforward. However, calculating net primary expenditure is complex. The calculations depend in no small part on assumptions and estimates that may change over time. One reason for this is to allow for cyclical developments to be taken into account. Furthermore, certain types of expenditure and the quantitative effect of discretionary revenue measures (in particular, tax law amendments) are factored out. This is complex and vulnerable to manipulation. Having this information will make it easier to understand the decision as to whether a country is adhering to its agreed expenditure path. 

The debt ratio in the highly indebted countries of France, Belgium and Italy initially rose further during the adjustment period (see Chart 5.2). At the end of the period covered by its plan, France’s debt actually exceeds today’s values, and it already has the longest adjustment period. The corrective paths in the excessive deficit procedure are also lacking in ambition. Under Italy and France’s fiscal plans, the structural balance (as a percentage of GDP

) should improve by an annual average of 0.4 and 0.6 percentage point, respectively. There are already signs that even these unambitious targets may not be met. Based on its own estimates, the Commission anticipates that the debt ratios will rise more sharply than indicated in the agreed fiscal plans. Italy is expected to record an increase to 140 % of GDP by the deadline for the correction of its excessive deficit in 2026.
11
See Council of the European Union (2025c). 
 According to the Commission’s estimates, France’s debt ratio will exceed 120 % by 2029.
12
See Council of the European Union (2025d).

In the similarly highly indebted countries of Portugal, Greece and Spain, debt ratios are declining, in some cases significantly. Greece and Portugal are benefiting from the fact that they have already achieved a structural primary surplus. Consequently, only limited additional fiscal consolidation is required to ensure that the debt ratio continues to fall significantly during the adjustment period.

Debt ratios of highly indebted euro area countries in line with agreed adjustment paths

Looking forward, it will be a matter of ensuring that the rules are implemented rigorously and that government finances remain on a sound footing. The expenditure ceilings are calculated in such a way that a country can achieve the intended structural balance and debt ratio ex ante. However, even if a country adheres to the agreed expenditure ceilings, its government finances may perform significantly worse than planned: such is the case when the underlying assumptions turn out to be too optimistic. These could be, for instance, assumptions regarding macroeconomic developments or interest rates. This would be critical, especially for countries in an excessive deficit procedure and with very high debt ratios. It is concerning that the fiscal plans adopted are, in many cases, more optimistic than the Commission’s original reference trajectory. Moreover, current estimates are already pointing to a rather less favourable trajectory in a number of cases. This is another reason why it is important to implement the rules rigorously, adjust them as needed, and refrain from relaxing them any further. This is without prejudice to the proposal to activate the escape clause for higher defence spending that is currently under discussion.

13
See European Commission (2025).

2 Budgetary development of central, state and local government

2.1 Tax revenue

2.1.1 2024 as a whole

Tax revenue rose by 4 % (+€31 billion) in 2024. It thus exceeded the official tax estimate of October 2024 (€6 billion); see Chart 5.3 and Table 5.2. In addition to wage tax and VAT

, the withholding tax on interest income and capital gains contributed around one-third to the increase on 2023, irrespective of its limited weight.

Tax revenue*

Wage tax revenue rose by 5½ % (+€13 billion) and was thus virtually in line with the official tax estimate. This increase was roughly equal to the growth in gross wages and salaries. Additional revenue from progressive income taxation was offset by tax cuts. Inflation-induced income growth (bracket creep) and real income growth resulted in progression-related tax hikes. This is due to the current procedure of adjusting the income tax scale to inflation with a lag of one year:

4
See Deutsche Bundesbank (2022b).  
 at the start of 2024, it was lowered relatively sharply in order to compensate for the high inflation of 2023.

Revenue from profit-related taxes went up by 3 %. It thus exceeded the official tax estimate by €2½ billion. The fact that revenue increased at all was because of a surge in receipts from withholding tax on interest income and capital gains (+130 %, or +€11 billion) due to higher interest income. By contrast, income from corporation tax fell sharply (-11½ %, or -€5 billion), which is likely to reflect a deterioration in the macroeconomic profit situation. 

VAT

 revenue rose by 3½ % (+€10½ billion), mainly as a result of expiring temporary tax cuts, exceeding the official estimate by €3 billion. VAT revenue growth was very weak in Q3, but saw surprising positive developments in Q4. 

Table 5.2: Tax revenue 

Type of tax

Year as a whole

Estimate for 
2024 1

Q 4
2023202420232024

 

€ billion

Year-on-year changeYear-on-year change

 

€ billion

Year-on-year change

€ billion

%

%

€ billion

%

Tax revenue 
Total 2

829.8

861.1

+ 31.3

+ 3.8

+ 3.1

221.3

235.1

+ 13.8

+ 6.3

of which: 
 Wage tax3

236.2

248.9

+ 12.7

+ 5.4

+ 5.3

64.7

69.1

+ 4.5

+ 6.9

 Profit-related taxes

163.0

167.9

+ 4.8

+ 3.0

+ 1.4

42.4

45.3

+ 2.9

+ 6.8

Assessed income tax4

73.4

74.8

+ 1.5

+ 2.0

+ 0.2

21.2

22.1

+ 0.9

+ 4.4

Corporation tax5

44.9

39.8

− 5.1

− 11.4

− 9.9

11.8

10.6

− 1.3

− 10.8

Non-assessed taxes on earnings

36.4

34.0

− 2.4

− 6.6

− 8.9

6.7

7.3

+ 0.6

+ 9.3

Withholding tax on interest  income and capital gains

8.4

19.3

+ 10.9

+ 130.4

+ 117.7

2.7

5.3

+ 2.6

+ 96.7

VAT6

291.4

302.1

+ 10.7

+ 3.7

+ 2.6

74.5

80.9

+ 6.4

+ 8.6

Other consumption-related taxes7

93.3

92.7

− 0.6

− 0.6

+ 0.4

27.1

26.1

− 1.0

− 3.5

Sources: Federal Ministry of Finance, Working Party on Tax Revenue Estimates and Bundesbank calculations. 1 According to official tax estimate of October 2024. 2 Comprises joint taxes as well as central government taxes and state government taxes.  Including EU shares in German tax revenue, including customs duties, but excluding receipts from local government taxes. 3 Child benefits and subsidies for supplementary private pension plans deducted from revenue. 4 Employee refunds and research grants deducted from revenue. 5 Research grants deducted from revenue. 6 VAT and import VAT. 7 Taxes on energy, tobacco, insurance, motor vehicles, electricity, alcohol, air traffic, coffee, sparkling wine, intermediate products, alcopops, betting and lotteries, beer and fire protection.

2.1.2 Outlook for 2025

For the current year, the official tax estimate from October 2024 shows a 3 % increase in tax revenue, with tax cuts approved in the meantime having a burdening effect. However, the revenue shortfalls stemming from new legislative changes could be offset to some degree by the fact that the higher than estimated annual result for 2024 is likely to be carried forward, at least in part, into the current year. 

The most significant tax cut to date affects the income tax scale. Even after the collapse of the Federal Government, parliamentary majorities voted to adjust the income tax scale downwards at the beginning of this year, thus offsetting last year’s bracket creep. In addition, income tax allowances for 2024 were raised retroactively in December 2024. Taken together, these changes are expected to reduce tax revenue growth by €11 billion, or just over 1 percentage point, in the current year. Further tax policy decisions may be pending after the Bundestag election. As things currently stand, however, there is barely any scope for tax relief. Furthermore, there are legal uncertainties, particularly with regard to revenue from the solidarity surcharge (¼ of GDP

 per year).
5
See Deutsche Bundesbank (2024b), Chapter 2.1.3 Additional tax cuts initiated. 

2.2 Central government finances

2.2.1 Annual accounts for 2024

The deficit for central government including its off-budget entities

6
Only the off-budget entities for which central government publishes monthly cash data are included. Not least, this means that the bad bank FMSW, the German Nuclear Waste Disposal Financing Fund (KENFO Foundation), central government-owned local public transport companies (particularly regional trains, which fall under the remit of Deutsche Bahn) and the infrastructure division of Deutsche Bahn are omitted. For information on the off-budget entities included in the reporting group, see Deutsche Bundesbank (2023), pp. 78 ff. 
 was significantly lower than in 2023 (down by €39 billion to €49 billion; see Table 5.3, item 21). This was mainly due to the strong improvement in the core budget result. 

Fiscal balance of central government's core budget *

In the core budget, the deficit contracted from €65 billion to €25 billion compared with 2023 (see Table 5.3, item 3), which was chiefly attributable to a surge in non-tax revenue (+€30 billion). At 5 % (+€19 billion), tax revenue grew much more strongly than nominal GDP

. This was also due to the fact that German contributions to the EU fell by €4½ billion. These contributions are deducted from tax revenue. Other revenue surged by four-fifths. For instance, central government received almost €10 billion more from NGEU. In addition, €8½ billion flowed back to central government from crisis assistance previously issued in the form of transfers. Furthermore, receipts from the toll on heavy goods vehicles rose by €5½ billion, as it has included a surcharge for greenhouse gas emissions since the end of 2023. Additional revenue of €4 billion resulted from central government dissolving the Digitalisation Fund and transferring its reserves to the core budget. A further increase of €3½ billion was attributable to sales of shares. At just over 1½ %, expenditure rose far more slowly than revenue, partly because central government outsourced expenditure to the Armed Forces Fund. Interest expenditure fell by €3½ billion as a result of decreased burdens for inflation-indexed Federal securities and lower discounts. 

Table 5.3: Key central government budget data1
€ billion
ItemActual 2023Target 2024Actual 2024
Jan. 25
1.Expenditure of central government budget (CGB)2

457.1

476.8

465.7

 of which:

 

 1.aInvestment

55.0

70.5

56.7

 1.bGlobal spending increases/cuts

-

− 10.5

-

2.Revenue of CGB2,3 

392.2

427.5

440.6

 of which:

 

 2.aTax revenue4

356.1

377.6

375.0

 2.bGlobal revenue increases/shortfalls

-

− 2.0

-

3.Fiscal balance of CGB (2.-1.)

− 64.9

− 49.4

− 25.0

4.Coin seigniorage of CGB

0.2

0.2

0.2

5.Transfer to (-)/withdrawal from (+) reserves in CGB

37.5

10.2

-

6.Net borrowing (-)/repayment (+) of CGB (3.+4.+5.)

− 27.2

− 39.0

− 33.3

 of which: 

 

 6.aRepayment of emergency net borrowing from return flows

 

 

− 8.5

7.Cyclical component in the budget procedure5

− 10.5

− 7.7

− 20.4

8.Balance of financial transactions of CGB

− 7.7

− 16.9

− 1.4

9.Structural net borrowing (-)/repayment (+) (6.-7.-8.)

− 9.0

− 14.4

− 11.6

10.Amount exceeding limit in CGB (13.-9.)

6) 1.4

-

− 2.8

11.Amount exceeding limit incl. ESF-E (10.-15.) 

42.9

-

− 2.8

12.Memo item: Amount exceeding limit with balance of off-budget entities (10.- 16.-17.)

46.4

34.5

25.0

13.Standard upper limit: Structural net borrowing (0.35 % of GDP)7

− 12.6

− 14.4

− 14.4

14.Structural balance of CGB (3.-7.-8.)

− 46.7

− 24.8

− 3.3

 14.aAs before, with estimate of potential output acc. to 2024 autumn forecast

− 46.6

− 13.8

− 5.0

15.Structural net borrowing of ESF-E

− 41.5

-

-

16.Deficit of ESF-E

− 41.5

-

-

17.Balance of special funds (SFs) relevant to the debt brake prior to 20228 

− 3.5

− 34.5

− 27.8

 of which:

 

 17.aClimate and Transformation Fund

− 1.7

− 28.7

− 23.1

 17.b2013 Flood Relief Fund

− 0.2

− 0.2

− 0.1

 17.cFund to Promote Municipal Investment

− 0.6

− 0.9

− 0.5

 17.dDigitalisation Fund

− 1.1

− 4.1

− 4.1

 17.eFund for Primary School-Age Childcare Provision

0.0

− 0.7

− 0.1

 17.f2021 Flood Relief Fund

0.0

-

-

18.Balance of SFs for making provisions for repayment and for extending childcare

4.0

2.2

1.8

19.Balance of other SFs without own constitutional rules9

23.9

-

19.5

20.Balance of Armed Forces Fund

− 5.8

− 19.8

− 17.2

 20.aBorrowing authorisation remaining thereafter

94.2

74.4

77.0

21.Balance of CGB and SFs (3.+16.+17.+ 18.+19.+20.)

− 87.8

− 101.4

− 48.7

22.Reserves of SFs for 16. and 17. 

37.3

2.9

9.5

23.Level of general reserves

10.7

0.5

10.7

24.Balance on control account10

52.6

52.6

55.5

25.Total outstanding repayment amount including Armed Forces Fund11

340.7

360.5

349.4

26.Total outstanding repayment amount from NGEU grants (e)12

46

69

69

1 Sources: Federal Ministry of Finance and Bundesbank calculations. For methodological notes, see Deutsche Bundesbank (2016). 2 Excluding transfers to/withdrawals from reserves and including net tax revenue (see footnote 3). 3 Excluding coin seigniorage. 4 After deduction of supplementary central government transfers, shares of energy tax revenue, compensation under the 2009 reform of motor vehicle tax and budgetary recovery assistance to federal states. 5 For 2023 according to the September 2024 figures, and for 2024 according to the budget plan and the January 2025 national accounts. 6 In arithmetical terms: -€3.6 billion. However, the actual payment of €1.37 billion to the 2021 Flood Relief Fund was booked, for which the escape clause was activated. The difference was posted to the control account. 7 Based on GDP in the year before the (comprehensive) budget is prepared. 8 Budgeted figures for 2024 from borrowing plan. 9 Entities with quarterly data, but with no figures in borrowing plan. Above all, ESF (excluding ESF-E), pension provisions and SoFFin. 10 Previous year's figure − 11. (where escape clause not activated). 11 Previous year's figure + 6.a+11. (if escape clause activated) and − 20. 12 NGEU budgeted figures and estimates, each multiplied by Germany’s share of 25 % in EU gross national income.

The deficit was thus €24 billion lower than in the budget plan. Revenue significantly exceeded expectations, mainly due to the repayment of crisis assistance funds. Expenditure undershot the estimates by €11 billion (see Table 5.3, item 1). In arithmetical terms, the global spending cut of €11 billion was already achieved due to the fact that the planned allocation of funds (€12 billion) to the generational capital fund was cancelled. In addition, expenditure on personnel, interest and other operating expenditure was lower than planned. 

According to the preliminary debt brake accounting, net borrowing fell short of its limit by just under €3 billion (see Table 5.3, item 10). In the budget plan, central government had fully exhausted the debt brake borrowing limit. Compared with the plans, the following factors were relevant:

  • The fact that the deficit was €24 billion lower (see above) should have had an easing effect on the budget. 

  • However, there were two reasons why this reduction in the deficit ultimately did not affect the debt brake.

    • First, this was partly attributable to return flows of crisis assistance funds (€8½ billion). These funds had been financed by emergency borrowing, and their repayment did not create fiscal space.

    • Second, financial transactions deviated from the budget plans (just under €16 billion; see Table 5.3, item 8). These are not counted towards the debt brake. For instance, central government did not issue the planned loan of €12 billion for the generational capital fund, and privatisation proceeds of €3½ billion were not included.

  • The fact that a higher cyclical burden allowed for net borrowing of almost €13 billion more under the debt brake (Table 5.3, item 7) ultimately brought relief. 

  • The fact that central government made less recourse to reserves (Table 5.3, item 5) had a negative impact: it conserved €10 billion, thus recording higher net borrowing.

By conserving its reserves, central government increased its fiscal space for 2025 by €10 billion. The undershooting of the upper limit of the debt brake (by €3 billion) is recorded (positively) in the control account (Table 5.3, item 24). The control account records all positive and negative deviations from the constitutional borrowing limit during budget implementation (less emergency borrowing). However, central government cannot use the control account for budget planning. This distinguishes the credit balance on the control account from the reserves. 

Fiscal balances of central government's off-budget entities*

In the case of off-budget entities, the deficit rose by €1 billion on 2023, to €24 billion. The high deficit in the Economic Stabilisation Fund for Energy Assistance (ESF

-E) fell away, but the outturn in several other off-budget entities deteriorated, particularly the Climate Fund and the Armed Forces Fund. 

  • In contrast to the previous year, the deficit of almost €42 billion in the ESF

    -E fell away (see Table 5.3, item 16). After the Federal Constitutional Court’s debt brake ruling, central government dissolved the ESF-E at the end of 2023. Interest expenditure as well as remaining spending commitments and repayment claims were assumed by the core budget.

  • In the Climate Fund, the deficit surged by just over €21 billion (to €23 billion; see Table 5.3, item 17.a). Although federal legislators had increased the price of German emissions allowances by one-half,

    7
    In 2023, central government had suspended the planned increase in response to high energy prices. With this sharp increase, central government returned to the old price path. 
     total receipts from allowances barely increased. The volume of allowances sold thus appears to have declined.
    8
    The decline in emissions cannot be calculated from this, especially as allowances could still be purchased retroactively in the following year.
     By contrast, expenditure by the Climate Fund doubled (+€21 billion). Ultimately, the main reason for this was that central government assumed the renewable energy (EEG) levy that was previously being paid by consumers (+€18 billion).
    9
    Up to mid-2022, central government charged a levy on electricity prices (from which large industrial consumers were exempt) to finance subsidies guaranteed in the long term for climate-friendly electricity production. Once the levy was abolished, central government was able to finance electricity subsidies up to end-2023 using the remaining funds from the levy. Since then, central government has had to take these subsidies into account in its budget plans, and made recourse to the Climate Fund in 2024, which used extensive reserves of its own for this purpose. Payments from the core budget are planned from this year onwards. The end of the electricity price levy is now putting a considerable strain on central government, making the scale of the subsidy clearly evident once more.

  • In the Armed Forces Fund, the deficit climbed steeply, by €11 billion to €17 billion (Table 5.3, item 20). However, the increase is due not only to additional procurement of military goods, but also, to a large extent, to outsourcing from the core budget.

  • In the case of SoFFin

     (Table 5.3, part of item 19), last year’s surplus of just over €4 billion lapsed because the bad bank FMS Wertmanagement did not repay loans in net terms again. 

  • In the Digitalisation Fund (see Table 5.3, item 17.d), the deficit increased by €3 billion. The fund was dissolved and its reserves of €4 billion transferred to the core budget (with an impact on the deficit). 

The off-budget entities’ budget outturn was €28 billion more favourable than in the published borrowing plan figures. The surpluses of the ESF

 and central government’s precautionary special funds for pension burdens (Table 5.3, part of item 19) were the main factor in this. Central government does not release any planned figures for these items. Moreover, lower than planned spending reduced the deficits of the Climate Fund and the Armed Forces Fund to €5½ billion and €2½ billion below the planned figures respectively. Although expenditure in the defence section of the budget was likewise lower than planned, the NATO target of 2 % of GDP was reached, according to central government. 

Its more favourable budget outturn will give the Climate Fund a correspondingly larger than planned reserve for deficits this year (a total of €6 billion). The Armed Forces Fund now has a correspondingly higher residual borrowing authorisation, totalling €77 billion (see Table 5.3, item 20.a). 

2.2.2 Outlook for 2025 and beyond

In the absence of a valid budget plan, the rules for interim budget management will apply. These rules do not compel the government to embark on a restrictive change of course. The government will be able to meet all its legal and contractual obligations. In addition, it can keep spending on funding programmes and investment measures that have already begun. The Federal Ministry of Finance’s budget circular

10
See Federal Ministry of Finance (2024).
 sets expenditure limits for such instances. Extrabudgetary expenditure is an option in the event of unavoidable necessity. In the case of interim budget management, central government may borrow far more than permitted under the debt brake to finance expenditure.

Interim budget management likewise restricts off-budget entities to only a limited extent. This is notably the case for the two largest special funds: the Armed Forces Fund and the Climate Fund. Although they have sizeable obligations for 2025, these do not overburden the total borrowing available for interim budget management. In the case of the Climate Fund, income from emission allowances also reduces borrowing requirements. 

Revenue from the solidarity surcharge is exposed to a judicial risk.

11
The solidarity surcharge is a surtax on income tax and corporation tax and is paid solely to central government. Deviation from the usual distribution of revenue from these taxes between central government, state governments and local governments is subject to certain conditions. For a discussion on the continuation of the solidarity surcharge beyond 2020, see Deutsche Bundesbank (2018), p. 60.
 Following oral proceedings on a constitutional complaint on 12 November 2024, the Federal Constitutional Court could announce its verdict this year. Revenue from the solidarity surcharge is therefore subject to risk. The tax estimate puts this revenue at €13 billion in 2025. In addition, the Federal Constitutional Court could order central government to repay revenue from previous years.

In any case, action must be taken to comply with the debt brake in 2025. Federal Finance Minister Jörg Kukies recently put the amount required to do so at €16 billion. The first draft budget, presented in the summer of 2024, only formally respected the borrowing limit. In addition to a large “residuum” global spending cut (total appropriations across the board declared to remain unused), this was due, not least, to tightly calculated appropriations, such as for the civic allowance.

12
For the draft central government budget for 2025, see Deutsche Bundesbank (2024c).
 In the meantime, new burdens have emerged: in particular, the tax estimate of October 2024 was significantly lower than budgeted figures and there is a greater amount needed for green electricity subsidies. While these burdens are accompanied by factors providing relief, the latter do not appear to have closed the gap: the higher core budget reserves (+€10 billion, see above) have made more room in the budget, and tax revenue in 2024 was €3 billion above the last tax estimate. In addition, the cyclical scope for borrowing under the debt brake would increase by €7½ billion if the budget were based on the Federal Government’s Annual Economic Report. 

There will be mounting challenges in the years thereafter. Central government is then likely to have used up reserves. In addition, not only are EU

 grants under the NGEU programme decreasing in 2025; from 2027, central government will have to manage without them altogether. From 2028 onwards, pension contribution rates will rise sharply, which will lead to an increase in government funds for the pension insurance scheme. Above all, the Armed Forces Fund’s borrowing authorisations are set to be exhausted, with expenditure again having to be financed out of the core budget. In addition, the need for even higher defence spending is currently the subject of renewed discussion; sustainable financing must ultimately be found to cover greater structural needs. Repayment of emergency borrowing will also start in 2028 under the current repayment schedule. This will narrow scope for borrowing by just over €9 billion initially. As of 2031, this reduction is even likely to reach €14 billion as first repayments for the ESF-E and the Armed Forces Fund will fall due.

2.3 State government budgets

State government core budgets posted a much larger deficit of €7½ billion in 2024 (2023: €1 billion). However, this increase was largely due to individual federal states acquiring financial assets. Revenue grew by just over 3 %. While tax revenue rose at a slightly higher rate, transfers from other public administrations fell somewhat (these transfers come from central government and the administrations’ own special funds, in particular). Total expenditure went up significantly, climbing by 4½ % (+€23 billion). In particular, spending on personnel – a major expenditure item – increased by 7 % (+€11 billion). This was mainly due to the last collective wage agreement, the terms of which the individual federal states also applied to civil servants. Transfers to local government on a similarly large scale rose at a slightly above average rate (+€6½ billion). In addition, state governments increased spending on capital injections and equity acquisitions by €4 billion: Hesse alone made a one-off investment of €2 billion into its Landesbank. 

State government fiscal balance

However, these figures are of only limited informational value for state government finances, notably because information on off-budget entities is lacking. Initial nationwide data covering 2024 as a whole for core budgets and off-budget entities will not be available until the end of the current quarter. However, there are also signs of a deterioration for off-budget entities: after three quarters, their outturn was €6 billion less favourable than in the previous year. 

Bremen, Saarland, Saxony-Anhalt and Schleswig-Holstein activated the escape clause of their debt brakes in 2024. This is necessary in order to use funds from emergency borrowing. Other federal states were planning to repay a portion of their emergency borrowing. The federal states differ greatly not only in how they apply their escape clauses but also, in some cases, in how their debt brakes are designed. It would be beneficial for the transparency of public finances to more closely harmonise the debt brakes. One candidate for greater harmonisation would be cyclical adjustment. 

This year, the state government deficit is likely to change little, despite the absence of the above-mentioned capital injections and equity acquisitions that affected the balance last year. Personnel expenditure is expected to continue growing markedly due to wage adjustments, albeit at a significantly slower pace than last year. Transfers to local government could see similar developments as tax revenue. 

Saarland, Saxony-Anhalt and Schleswig-Holstein are planning to make use of emergency borrowing this year, too. Saarland declared a state of emergency on the basis of structural change in the region and last year’s floods. Schleswig-Holstein points to the impact of the crisis triggered by Russia’s war of aggression against Ukraine. Saxony-Anhalt cites the consequences of the COVID

-19 pandemic as justification. All three federal states already have a per capita debt burden that significantly exceeds the average of the non-city states. In this respect, caution would appear warranted when financing expenditure using borrowed funds. 

3 Social security funds

3.1 Pension insurance scheme

3.1.1 2024 as a whole

The statutory pension insurance scheme recorded a deficit of €2 billion for 2024 as a whole. It had posted a surplus of €1½ billion in the previous year. As at the end of 2024, the sustainability reserve had shrunk to €44 billion (just over 1.5  times the scheme’s monthly expenditure); its minimum is 0.2 times the scheme’s average monthly expenditure (just under €6 billion). The figures are expected to improve somewhat with the final annual accounts. The pension insurance scheme is currently planning to run deficits and thus gradually bring its sustainability reserve back to the statutory minimum.

Finances of the German statutory pension insurance scheme*

At 6 %, expenditure growth was stronger than growth in revenue. On an annual average, pensions rose by 4½ % in line with the regular adjustment. The number of pensions grew by 0.6 %. In addition, the pension insurance scheme paid out new flat-rate supplements to persons drawing reduced earning capacity pensions.

13
Since 2024, the pension insurance scheme has been paying these supplements to persons who began drawing their reduced earning capacity pensions between 2001 and 2018. These are likely to have contributed almost €1½ billion to expenditure in 2024, increasing the rise in spending by just under ½ percentage point. 
 Total revenue rose sharply (+5½ %), even though federal legislators cut government funds for discretionary spending by just over €1 billion. 

3.1.2 Outlook for 2025

The deficit looks set to rise considerably this year. Contribution receipts are likely to grow at a markedly weaker rate than last year, with earnings subject to compulsory contributions rising more slowly even though social contribution-exempt inflation compensation bonuses have now been discontinued. This cannot be offset by what is expected to be faster growth in government funds (government funds are linked to the wage developments from two years previously, and remuneration rose particularly sharply in 2023). 

Expenditure is set to continue rising more dynamically than revenue. Up until mid-year, the significant pension adjustment from 2024 will be in effect (+4½ %). In mid-2025, the adjustment could be close to 4 %.

14
The 2024 pension insurance report (see Federal Ministry of Labour and Social Affairs (2024)) anticipated that this would be 3½ %. However, in 2024, the relevant wages grew by just under ½ percentage point more than had been assumed in the report. In addition, the Federal Government has since raised the contribution rate to the public long-term care insurance scheme by 0.2 %. All else being equal, the adjustment therefore needs to be 0.1 percentage point higher in order to maintain the minimum replacement rate of 48 %. The reason for this is that pension recipients pay the entire contribution to the long-term care insurance scheme themselves. By contrast, employees’ contributions are paid in part by employers. Therefore, the higher contribution rate weighs on pensions more strongly in the numerator of the replacement rate than on wages in the denominator. 
 Additionally, the number of pensions is expected to increase more strongly than in 2024 due to demographic factors. This will be accompanied by additional expenditure of another almost €1½ billion on the new supplements to pensions for reduced earning capacity. The burdens brought about by the sharp rise in the average supplementary contribution rates to the statutory health insurance scheme are similarly high. 

3.1.3 Longer-term outlook

In the second half of this decade, demographic factors will weigh significantly more heavily on pension scheme finances. Pressure on both the expenditure and the revenue side will increase due to particularly large birth cohorts retiring. The contribution rate therefore needs to rise considerably (see also Deutsche Bundesbank (2024b), the supplementary information entitled Social contribution rates to rise sharply). In addition, the replacement rate is a key metric for expenditure development. Under current legislation, this will remain at 48 % until the end of 2025 and will then gradually decline. At the end of the next decade, it could stand at around 45 %. Nevertheless, the contribution rate will rise sharply: according to the pension insurance report published last November, the rate will increase by 1.3 percentage point to 19.9 % by 2028 under the current legal framework. Further increases will subsequently be needed, which could result in a contribution rate of around 21½ % by the end of the next decade.

15
The pension insurance report offers little informational value this year, as it reflects the planned rather than the current legal situation. The Social Advisory Council therefore also details how pension scheme finances would develop under current legislation. See Social Advisory Council (2024). 

In order to alleviate demographic financing pressures, it would be expedient to reduce financial incentives for early retirement and to link the retirement age after 2030 to life expectancy. In particular, full pensions without any deductions after 45 years of contributions are a financial incentive for early retirement. Moreover, longer life expectancy and an unchanged statutory retirement age also mean a lower ratio of years of employment to years of retirement. In order to prevent this, after 2030, the retirement age could be linked to life expectancy. These measures would provide a boost, not least, to employment and thus to economic activity as well as the government revenue base, and they would also curb pension expenditure. In this way, they would reduce funding pressures, not just on the statutory pension insurance scheme and the central government budget but also in other areas. 

3.2 Federal Employment Agency

The Federal Employment Agency posted a deficit of €½ billion in 2024.

16
In the core budget, i.e. excluding the civil servants’ pension fund of the Federal Employment Agency. The transfers to this fund come out of the core budget. However, the civil servants’ pension fund recorded a surplus of €½ billion. As at the end of 2024, its funds amounted to €8½ billion. 
 On balance, this was the result of the Federal Employment Agency spending more on insolvency benefit and winter employment compensation than it received via the contributions for these. However, the reserves for these benefits still came to €2 billion as at the end of 2024. The core budget reserves remained broadly unchanged at €3 billion.

Finances of the Federal Employment Agency*

Compared with the previous year, the Federal Employment Agency’s outturn deteriorated significantly (2023: surplus of €3 billion), mainly because unemployment benefits – a major expenditure item – increased sharply. At 5½ %, Federal Employment Agency revenue also grew considerably, but to a much lesser extent than expenditure (+15 %). Unemployment benefits rose by 18 %, mainly due to a higher number of recipients (+12 %). Active labour market policy expenditure likewise went up sharply (+13½ %), but it is significantly smaller in volume. Payments for insolvency benefit grew by 30 % (up by just under €½ billion). At 10 %, administrative expenditure rose sharply, partly because the Federal Employment Agency sharply raised the transfers to its civil servants’ pension fund. 

The Federal Employment Agency expects its finances to deteriorate somewhat this year, anticipating a deficit of almost €1½ billion in its core budget. Its planned revenue is 4½ % higher than the figure for 2024. Contribution receipts are likely to grow at a markedly weaker rate than in the previous year. By contrast, the budget plan assumes an increase in the insolvency benefit contribution rate from 0.06 % to 0.1 %. Expenditure is expected to see a sharp rise of 6 % compared with the previous year, driven by strong growth in active labour market policy. This is partly due to the fact that central government is shifting costs for recipients of the civic allowance to the Federal Employment Agency.

As things stand, the Federal Employment Agency’s outturn is likely to be significantly worse than planned. According to the Bundesbank’s December 2024 Forecast for Germany, labour market developments are markedly less favourable than those assumed in the Federal Employment Agency’s plans. Meanwhile, the additional revenue from the higher insolvency benefit contribution rate is of only minor importance: contrary to plans, the Federal Government did not set the contribution rate at the intended 0.1 % at the start of the year. As a result, it returned to its legally enshrined standard level of 0.15 %.

List of references

Council of the European Union (2025a), Economic governance framework: Council sets fiscal expenditure paths for 21 member states, press release 41/25, 21 January 2025.

Council of the European Union (2025b), Stability and growth pact: Council adopts recommendations to countries under excessive deficit procedure, press release 39/25, 21 January 2025.

Council of the European Union (2025c), COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive deficit in Italy, ST− 5035‑2025-INIT, January 2025.

Council of the European Union (2025d), COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive deficit in France, ST− 5033‑2025-REV− 1, January 2025.

Darvas, Z., L. Welslau and J. Zettelmeyer (2024), The implications of the European Union's new fiscal rules, Bruegel, Policy Brief Issue No 10/2024.

Deutsche Bundesbank (2024a), Forecast for Germany: Significantly gloomier growth outlook – inflation decreases to 2 %, Monthly Report, December 2024.

Deutsche Bundesbank (2024b), Public finances, Monthly Report, November 2024. 

Deutsche Bundesbank (2024c), Public finances, Monthly Report, August 2024. 

Deutsche Bundesbank (2023), The growing significance of central government’s off-budget entities , Monthly Report, June 2023, pp. 63‑81.

Deutsche Bundesbank (2022a), Central government’s debt brake: options for stability-oriented further development , Monthly Report, April 2022, pp. 49‑66.

Deutsche Bundesbank (2022b), Inflation-induced bracket creep in the income tax scale , Monthly Report, June 2022, pp. 63‑73.

Deutsche Bundesbank (2018), Public finances , Monthly Report, November 2018, pp. 54‑65.

Deutsche Bundesbank (2016), Key central government budget data in connection with the debt brake , Monthly Report, February 2016, pp. 68‑69.

Deutsche Bundesbank (2006), A disaggregated framework for analysing public finances: Germany’s fiscal track record between 2000 and 2005 , Monthly Report, March 2006, pp. 61‑76.

European Commission (2025), Speech by President von der Leyen at the Munich Security Conference 2025, 14 February 2025.

European Commission (2024a), National medium-term fiscal-structural plans.

European Commission (2024b), Draft budgetary plans 2025.

European Commission (2024c), Report from the Commission for Austria and Finland, Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union, November 2024.

Federal Ministry of Finance (2024), Rundschreiben zur vorläufigen Haushaltsführung 2025, December 2024.

Federal Ministry of Labour and Social Affairs (2024), Rentenversicherungsbericht 2024.

Social Advisory Council (2024), Gutachten des Sozialbeirats, Jahresgutachten 2024, November 2024.

All articles

1

Overview

2

Global and European Setting

3

Monetary policy and banking business

4

Financial markets

5

The German economy

6

Public finances

7

Statistical Section

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