Tax Revenue Tracking Around E10bln Lower than YTD Forecast (1/2)

German tax revenue excl. municipality taxes declined 4.5% Y/Y to E77.6bln in March and stands at +1.6% Y/Y YTD (vs +5.8% in Feb). Even though the monthly decrease was driven by a base effect (reversing developments from last month), tax revenue seems to be tracking behind also on a YTD basis against historical standards, with March YTD revenues at 23.1% of 2024 overall planned revenue, against a 24.3% historical average - a 1.2ppt tracking error. This follows February's YTD spending tracking at 14.3% vs 14.6% hist avg 2017-2023.

• The current 1.2ppt tracking shortfall already indicates a miss of around E10bln YTD and we are only three months into the year. (E203.0bln revenue has been received YTD vs E213.7bln which represents 24.3% of E877.9bln with 24.3% being the average of annual revenue received in Jan-Mar and E877.9bln the total 2024 revenue forecast).
• If this was extrapalated for the whole year, this miss would likely be even higher (roughly E40bln or so but that is a very speculative number).
• The ministry of finance noted that weak taxes on turnover, which are stagnating, can be explained by the prevailing weak economic conditions in Germany, and that they are expecting a partial relief as sentiment begins to improve.
• Regardless, the miss to the tracking revenue amounts to a considerable amount now. And as any budget deficit in 2024 will be limited by the national debt brake, the government might have to intervene to cut expenditure (or raise taxes) later this year, if current trends prevail.
• Elsewhere, March revenues in a set of spefic categories are indicative of weak turnover in the housing market, as well as high ongoing portfolio liquidations.