Tax revenues decline in March: budget negotiations face difficult times

Tax revenues decline in March: budget negotiations face difficult times

Federal and state tax revenue fell significantly in March of this year. According to the monthly report from the Federal Ministry of Finance, they fell by 4.5 percent compared to the same month last year to 77.55 billion euros. This decline marks the worst month of the year so far, following noticeable increases in January and February. Overall, there was an increase of 1.6 percent to almost 203 billion euros in the first quarter.

Economist Jens Boysen-Hogrefe from the Kiel Institute for the World Economy commented on the development of tax revenues in March and described them as a sign that the recession is making itself felt in this area. This could further complicate the government's upcoming budget negotiations. In May, the new forecasts from the tax estimation working group will be published, which will provide information about how much the government will have to make savings when preparing the 2025 budget.

The decline in tax revenue in the first quarter is due, among other things, to sales tax, which fell due to weak consumption. Income and corporate taxes also recorded declines in March. Revenue from property transfer tax was particularly hard hit, as it was 18 percent lower than in the same month last year. Nevertheless, there are at least signs of stabilization. However, income from the withholding tax on interest and sales income as well as from wage tax developed positively.

Finance Ministry experts emphasize that the latest economic data paint a mixed picture. However, sentiment indicators point to a brightening outlook. Private consumption in particular could recover if purchasing power continues to increase. This is primarily supported by significantly higher wages, a lower inflation rate and a stable situation on the labor market.