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Tax revenues break the trillion mark - but where is the money?
The federal and state governments will achieve new record tax revenues in 2025, while budgets are struggling with billions in deficits. An overview.
Tax revenues break the trillion mark - but where is the money?
The financial situation of the German state coffers has taken a significant turn in 2025. As the World reported, the federal, state and local governments have exceeded the one trillion euro limit in tax revenue for the first time. To be more precise, revenues amount to an impressive 1,035 billion euros, an increase of almost 40 billion euros compared to the previous year.
But despite these records, the budget situation is anything but rosy. The state ended 2025 with a loss of around 107 billion euros. What is particularly noticeable is the increase in revenue from VAT (+4.4 percent), wage tax (+5.1 percent) and assessed income tax (+6.5 percent). In contrast, there were declines in trade tax (-1.7 percent) and corporate tax (-1.6 percent).
The numbers in detail
Tax payments now account for 23.2 percent of gross domestic product (GDP) in 2025, compared to 23.0 percent in 2024. GDP itself was estimated at 4,470 billion euros (nominal) according to preliminary calculations. Even if the increase in the tax rate can be observed, it is still below the values of 2021 and 2022, which were over 24 percent. One reason for this could be the elimination of the inflation compensation premium.
For 2026, economists expect a moderate reduction in the tax rate due to planned tax measures. Social security revenue was a significant 18.4 percent of GDP in 2025, the highest level since the 1990s. This trend could even increase in 2026, especially due to the increased additional contributions from statutory health insurance companies.
In total, taxes and social contributions together amounted to 1,859 billion euros in 2025, which corresponds to 41.6 percent of GDP. This was the highest value since the turn of the millennium. However, whether the financial situation will improve in the future remains uncertain at present, especially given the uncertainties in budget planning and possible reforms by 2027.
A look beyond the borders
As in another analysis of the Federal Ministry of Finance As can be seen, the tax rate in Germany will be 38.1 percent in 2023 and will therefore be in the upper midfield internationally. This tax rate is comparatively high, especially in contrast to countries such as Belgium and the Scandinavian countries, which reach over 40 percent. An international tax comparison also makes it clear that Germany is in the upper league with a tariff tax of around 30 percent for corporate profits, while the majority of countries tax less than 25 percent.
The federal government plans to gradually reduce the corporate tax burden to around 25 percent in order to strengthen the economic basis. In addition, income tax policy aims to provide incentives for the broad middle of society and families. The tax wedge, i.e. the total burden of taxes and social security contributions, is 47.9 percent for single people with average earnings in Germany - only Belgium has a higher value.
The structural challenges that shape tax and contribution policy in Germany are still present. The most important challenges include demographic developments, structural adjustments and geopolitical factors. The tax investment immediate program, also known as a “growth booster”, is intended to help counteract these developments and promote Germany’s economic stability.
Whether the trends in the tax and contribution system will stabilize or change remains to be seen. However, one thing is certain: the coming years will require a good hand in political and economic tax management.