The German Bundesrat has temporarily halted the federal government's proposed tax-free and contribution-free 1,000-euro relief premium for employees. The legislation, which required approval from the upper house, failed to secure the necessary majority during Friday's vote. Multiple states raised concerns during the debate about additional financial burdens this measure would place on regional and local governments.
To expedite the parliamentary process, the amendment enabling the one-time premium had been attached to a bill modifying the tax advisory law. The Bundesrat formally rejected this combined legislation containing the premium provisions. The federal government or the Bundestag, which had already approved the bill, could now invoke the mediation committee. However, no such motion was filed in the Bundesrat.
The legislative change would have enabled companies to pay their employees a tax-free and social contribution-exempt premium of 1,000 euros. The governing coalition had agreed on this model to provide relief to workers facing high energy costs without requiring direct payments from the federal budget.
Employers would have been responsible for funding the premium, and many have expressed strong reservations about the proposal. Numerous business representatives have pointed out that they lack the capacity to make such payments given the current challenging economic situation. However, the measure would also result in revenue losses for states and municipalities.
Baden-Württemberg's outgoing Minister-President Winfried Kretschmann from the Greens and Hamburg's Finance Senator Andreas Dressel from the SPD criticized this aspect during the debate. The federal government had only provided counter-financing for federal losses through a higher tobacco tax.
Beyond employer concerns, the premium has also faced significant opposition from labor unions. Unions argue that this represents merely a one-time payment that does not lead to permanent salary increases for employees and could potentially compete with linear wage growth.
Following the Bundesrat's decision to block the planned relief premium, Mecklenburg-Vorpommern's Minister-President Manuela Schwesig from the SPD has called on Federal Chancellor Friedrich Merz from the CDU to prepare a comprehensive reform package on a broad political foundation.
The need for relief and reform in Germany has "reached a dimension where it is necessary for the Chancellor to meet with the Minister-Presidents and also with social partners to discuss extensive measures," Schwesig stated on Friday in the Bundesrat.
The SPD politician welcomed the Bundesrat's decision to initially block the federal government's planned tax-free and contribution-free 1,000-euro relief premium for employees. "Individual measures alone will no longer help us," she said. Citizens must be comprehensively relieved, "this cannot be done in a piecemeal fashion."
What is now needed is "a comprehensive package to strengthen the economy, reduce energy prices, and relieve lower and middle incomes," Schwesig stated. Additionally, it is now time "to jointly shape a health reform and a pension reform in order to restore economic stability and social security in Germany." The coalition must present a comprehensive package "that we can then jointly approve with the states so that it reaches the population."
The planned 1,000-euro relief premium would barely have reached people in eastern Germany because employers could no longer afford to pay it out. She is convinced "that it would not reach many people and would thus also create social unrest," Schwesig said. Instead, "an income tax reform must now come quickly that permanently relieves especially low and middle incomes."
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