The tax burden in Germany fell significantly overall in 2023. Getty Images
Many citizens live with the unpleasant feeling that taxes and duties are growing. But at least in 2023 the opposite was the case: the burden of taxes and social security contributions has decreased.
The tax rate, i.e. the share of taxes in economic output, fell to 23.2 percent. If you add social security contributions, the total tax rate fell to 44.45 percent. In both cases this was 1.2 percentage points less than in 2022.
The most important reason was tax relief from the traffic light government. Economists expect tax burdens to rise slightly again this year.
Contrary to the feeling of many citizens and entrepreneurs, the tax burden in Germany fell last year. Three factors in particular contributed to this. But the development is unlikely to last long.
The trillion mark in state tax revenue is getting closer and closer. Last year, 957 billion euros flowed into the coffers of the federal, state and local governments. According to the figures from the Federal Statistical Office, that was another ten billion euros more than in 2022.
The good news: For the first time since 2020, there can be no talk of a record tax burden. The state’s tax revenue grew nominally. However, they grew more slowly than the economy. The gross domestic product was nominally 4,121 billion euros in the previous year, compared to 3,877 billion euros in the previous year.
This means that the state’s tax revenues accounted for 23.2 percent of the gross domestic product. In 2022 the rate was still 24.4 percent. This is shown by calculations based on figures from the Federal Statistical Office.
Welt
The decline is notable because this is only the eleventh time in the 33 years since reunification. But this is also noteworthy because the feeling may be different for many employees and employers. In many places there is the opinion that the tax burden is constantly increasing.
“Politicians have eased the burden in 2023,” said Jens Boysen-Hogrefe from the Institute for the World Economy (IfW) in Kiel. He is a member of the tax estimates working group, which prepares forecasts of tax revenue in Germany twice a year.
Tax rate falls: tariff was adjusted in 2023
Among other things, he is alluding to balancing the cold progression. The key parameters of the tax rate were already significantly adjusted in 2023 – the basic tax allowance, i.e. the income up to which no euro is spent on taxes, was increased, as was the amount from which the top tax rate of 42 percent comes into effect for the first time.
In addition, a number of employees received an inflation compensation bonus last year. Employers are allowed to pay out up to 3,000 euros to their employees tax- and social security-free. Boysen-Hogrefe also refers to the crisis that hit the real estate sector last year due to rising interest rates and high material costs. “As a result, sales taxes fell housing and the revenue from the property transfer tax,” he said.
Overall, tax revenue continued to rise, but not as strongly as nominal economic output. This ballooned particularly strongly due to the high inflation rates. In real terms, i.e. adjusted for prices, the Federal Statistical Office shows a decline in gross domestic product of 0.3 percent for 2023.
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The interesting question is how the tax burden will develop in 2024. “The tax rate is likely to increase slightly again,” said Boysen-Hogrefe. Inflation compensation bonuses could still be paid out until the end of 2024, but there probably won’t be much more. “In addition, the VAT rates for gas and food in restaurants are rising.” And ultimately, the CO₂ prices, which rose significantly at the turn of the year, will also have an impact; they also count as taxes.
Most recently, experts from… Institute of German Economy (IW) In Cologne it is calculated that many citizens, despite further rising key figures in the income tax rate for 2024 have to cope with higher loads. In addition to the higher VAT rates and CO₂ prices, they also added the increased network fee.
An example: A family with two children in which one parent works will end up with a gross income of 42,000 euros a year, 33 euros less. For a single person with an annual income of 30,000 euros, the loss would be 76 euros; according to IW calculations, single parents with the same income would even be charged an additional 144 euros.
Social security contributions increase for higher incomes
The experts also took into account the expected increase in social security contributions. In the pension and unemployment insurance This year, income of up to 7,550 euros in the West (plus 250 euros) and 7,450 euros in the East (plus 350) are subject to tax when calculating contributions. In statutory health and nursing care insurance, the limit in 2024 will be 5,175 euros (plus 187.50 euros). This increases social security contributions in higher income classes.
Welt
In addition, the average additional contribution in statutory health insurance will change from 1.6 percent to 1.7 percent from January. The contribution rate for statutory nursing care insurance, which increased in July 2023, will apply for a whole year for the first time in 2024.
The bottom line is that taxes, i.e. taxes plus social security contributions, will rise again in the current year, according to expectations. Boysen-Hogrefe expects a return above the 41 percent mark in 2024. Last year it was 40.45 percent, 1.2 percentage points below the 2022 value. One of the exciting questions is whether the trillion mark in tax revenue will be broken for the first time this year. “It will be narrowly missed again in 2024,” said Boysen-Hogrefe. But he isn’t sure.
The article first appeared at Welt.
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