EUROPEAN FISCAL: July German Tax Revenues Signal Weak Retail Sales

German tax revenue excluding municipality taxes decreased 7.9% Y/Y to E63.8bln in July, reducing the YTD comparison to +2.9% Y/Y (+3.6% June). Weaker VAT revenues were one driver - possibly signalling low retail sales towards the middle of the year when publication of data resumes shortly.

• July YTD revenues were 55.3% of forecast 2024 total revenues, broadly in line with historical norms (Jan-Jul averaged 56.1% of total annual revenue through 2017-2023).
• Turnover-based tax revenues were weak in July at -8.7% Y/Y (VAT -10.1%, Import VAT -4.5%). While the Ministry of Finance notes that the drop was partially due to base effects, to us it also suggests weaker June private consumption (recall that retail sales releases were suspended pending a methodology update from Destatis, and are scheduled to be picked up again on Friday).
• Income tax revenue growth meanwhile accelerated further to +6.2% Y/Y (vs +6.0% June). The MoF adds that impacts from the labour market (higher employment / higher 'Kurzarbeit') should broadly cancel out; and they expect income tax growth to remain below nominal wage growth (which was notably high in Q1 and tapered off during Q2) on the back of implemented inflation compensation tax breaks.
• Capital gains taxes, after surging before on a yearly comparison, seem to have stabilized around E1.4bln of monthly revenue (up 81.1% Y/Y regardless but less than the +154.1% prior). The gains compared to last year came on the back of stronger interest income by retail investors, and a shift towards money market accounts as opposed to checkings accounts by savers.