Incomes and expenditures of the German state

Term Paper, 2018

13 Pages



Analysis of the incomes and expenditures of the German state

General data

Financial Planning of the German state
Law for budget principles
Federal budget law
Debt policy as an important determinant for planning

Federal budget 2014



Analysis of the incomes and expenditures of the German state

This paper is about the financial management of the German state. At first, some general data about Germany are given as an overview, then the financial planning process will be explained, the income and the expenditures of the state are outlined and in the end some forecasted numbers are presented. At some points, special issues which are either German specialties or which are largely discussed and criticized will be explained in particular.

General data

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Source: Federal statistical office

Financial Planning of the German state

The basis of financial management is always financial planning and forecasting. Therefore, the legal basis for financial planning of the German state will be explained in this chapter.

The legal basis consists of two laws: the “Law for budget principles” and the “Federal Budget Law”.

Law for budget principles

This law sets the general goals, principles and functions for the federal budget plan. In the following, some aspects will be explained: The most important rule is the principle of economy, efficiency and effectiveness, which sets a very high standard of professionalism for the planning process. In other words, established professional accounting methods like for instance the cost and performance accounting or double entry bookkeeping must be applied in certain areas. Also, it means not to waste capital and plan efficiently for example by modifying processes to reduce administrative costs. However, this principle can be interpreted in different ways: some parties might claim that only structural policies are effective which happened in the past.

Furthermore, the budget plan has to include the following three pillars according to this law: the expected income, expected obligatory payments as well as expected commitment appropriation (the expected use of capital from future budgets §8). It is structured in categories which represent the ministries of the state.

Moreover, the plan can be valid for two years (§9) although it is usually planned for one year only.

Federal budget law

After the federal budget plan is elaborated by the Ministry of Finances which sets the general distribution to the ministries and all other ministries in their particular field of expertise it will be passed as a the federal budget law by the Bundestag (national parliament consisting of members directly elected by the peoples). Then, the Bundesrat (national parliament consisting of members from the federal parliaments) has the right to enter a caveat within six weeks.

Sources: the mentioned laws

Debt policy as an important determinant for planning

In the following chart you can see amount of German national debts in Euros and how it increased over the last decades. 1)

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Some of the major events causing higher borrowing were the reunion and its following costs in the 90ies as well as the crisis in 2008. Most recently, the debt was at 77,3% of the GDP in the first quarter of 2014.2)

As a general principle the government must now consider a special law on debts for the financial planning. After the crisis in 2008 this so called ,,debt brake” was introduced in 2009 with the article 109 and since 2011 with the articles 115 and 143d in the German constitution with the final goal to be free of debts in the future. According to this law, federal states are now considered as financially independent from the national state to a certain degree: As from 2016 the German state must not have any new structural deficits (not including deficits due to economic fluctuations) at all or it must not exceed 0,35% of the GDP per anno. By contrast, the federal countries must not have any new structural deficits as from 2020 with special exceptions like natural disasters or harsh recessions. Furthermore, an early warning system for budget crises was established which consists of the stability council. This institution controls if the laws concerning financial planning and the debts are respected and if enough progress is achieved each year so that the final goal can be accomplished. Moreover, it develops emergency programs if necessary.

In the following image you can see how the debts are supposed to be reduced within the next years in percentages of the GDP.

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2012, 1013: calculated by German bank (Deutsche Bank) 2013-2017: estimates by Ministry of Finances from July 2014

In the following chart you can also see the new borrowings per year without the ESM and the EIB.

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The austerity plan is sometimes criticized by some parties and media for several reasons:

For example, especially the federal states and local communities are put under pressure and it is argued whether the national state itself should save more capital by reducing its own obligatory expenses instead of reducing its expenses by giving less to lower levels. As a result, some federal states and communities might not be able to carry out their federal or local duties.

Some claim that the austerity policy slows the economy down as there are fewer investments than usual. Moreover, there are some urgent and necessary investments like in the infrastructure. Without them the economy might destabilize in the future according to some voices which will be explained more detailed later.

Also, the reduction of expenses is seen as “unsocial” by 56 % of the population.3)

The German government also tries to bring the austerity policy to the European level and many member states of the EU claim that they are not able to fulfill these requirements without threatening the economic growth. As a result, there are political tensions between the EU members.

However, there are also many supporters who claim that the goals are not high enough since it will still take decades until Germany will be debtless.

Federal budget 2014

In the following chart you can see the planned incomes and expenditures of the year 2014. Please note, that only the most important categories are shown. Many categories are not further explained or left out because they are too specific to explain in this short paper.


Total income: 296.500.000 thousand €

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As you can see the biggest income source are taxes and the top three of the biggest tax revenues are the sales tax (usually 19% or 7%), income tax and the energy tax. Last year in 2013, the tax revenues were higher than ever before mainly explained by the low unemployment which is very positive for the debt policy.6)

A notable particularity of the German tax system is the solidarity tax which was introduced after the reunion to finance the costs for building up the East German economy. Also, the tax system is considered as one of the most complicated in the world. Furthermore, there was a program of new tax regulations introduced with the so called “Eco-tax” from 1999 to 2002 to increase the environmental awareness and friendliness. For instance, the electricity tax was created which is not valid for renewable energies. There are still reflections and discussions about further measures in the frame of the eco-tax today.

Besides, in 2014 there will be the lowest borrowings since 40 years which is necessary as Germany must not take out any new loans in 2015.


Excerpt out of 13 pages


Incomes and expenditures of the German state
Catalog Number
ISBN (eBook)
ISBN (Book)
German Finance, Haushalt, Bundeshaushalt, Federal Budget, Staatsverschuldung, Deutsche Bank, Ausgaben Deutschland, Einnahmen und Ausgaben
Quote paper
Paula Müller (Author), 2018, Incomes and expenditures of the German state, Munich, GRIN Verlag,


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