Consequences of the corona pandemic: High tax revenues cushion the budget deficit

The deficit in the German state budget as a result of the high corona costs was significantly smaller in 2021 than initially assumed.

The federal, state, local and social security expenditures exceeded revenue by around 132.5 billion euros, as the Federal Statistical Office announced on Friday.

This is 12.8 billion euros less than in the first Corona year 2020. A first estimate published in January, however, showed an increase to almost 154 billion euros, but tax revenue developed better than expected.

The deficit corresponds to 3.7 percent of the gross domestic product.

The reference value of the European Stability and Growth Pact of three percent was thus clearly missed for the second year in a row.

However, its application was suspended for the years 2020 and 2021 due to the Corona crisis.

For example, because of the Corona crisis, the state spent a lot of money on emergency aid to companies, vaccination centers, free tests and to support hospitals.

Billions in aid were also paid for the flood victims.

For this year, most experts have so far been expecting significantly less new borrowing – also because of the expected strong economic recovery.

After the Russian invasion of Ukraine, there is again a question mark.

In January, federal and state tax revenues rose even more sharply than they had recently: they climbed by 22.4 percent to 57.55 billion euros.

increase in the budget deficit

The federal deficit increased to 143.3 billion euros last year - that is 57 billion more than in 2020. The federal government shouldered most of the corona costs.

On the other hand, the financing balances of the federal states (5.1 billion euros), the municipalities (1.4 billion euros) and the social security funds (4.4 billion euros) were slightly positive, also due to high transfers from the federal government.

Tax revenue rose sharply in 2021 by 12.9 percent.

"The recovery was mainly based on higher income from corporate taxes," it said.

In particular, corporate income tax and trade tax receipts recorded strong growth.

"The sharp increase in tax revenue, especially corporate taxes, indicates that the financial situation of many companies is relatively robust despite the consequences of the pandemic," said Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Business Cycle Research (IMK).

Politicians have protected the structures of the German economy.

"This gives hope that they are also able to cope with the new shock reasonably well," he said, referring to the Russian invasion of Ukraine.

Last year, the state generated revenue for the first time from the newly introduced CO2 tax.

"The increase in wage tax revenue, on the other hand, was dampened by the elimination of the solidarity surcharge for most employees," it said.