Germany's federal cabinet is due to adopt the government's planned income tax reform on Wednesday. This was confirmed on Tuesday by the finance ministry in Berlin. "With the reform, the great majority of taxpayers will have more net income from their gross pay," the ministry said. For a family with two children on a middle income, it added, this amounts to relief of a good 600 euros.
In total, according to the draft law seen by the news agency AFP on Tuesday, the reform has a relief volume of around ten billion euros. This is to be reached in two stages, in 2027 and 2028. Taxpayers on low and middle incomes, as well as families with children, would be the main beneficiaries, it was said.
Among the measures intended to fund the package is an increase in the so-called wealth tax rate — the top rate levied on very high earners. The draft law puts the resulting revenue losses for the federal government, the states and municipalities at around 4.5 billion euros for the 2027 fiscal year, at 6.0 billion euros for 2028, and at roughly 5.7 billion euros in each of the two following years.
The federal finance ministry had also put forward proposals for even more far-reaching relief, officials in the department headed by Minister Lars Klingbeil (SPD) stressed. "That would have required further steps towards consolidation, the dismantling of tax subsidies and additional tax responsibility on the part of the wealthy." As no agreement on this was possible within the coalition, the draft law now on the table implements what was agreed as a compromise in the coalition committee.
In concrete terms, the basic tax-free allowance is to rise from its current level of 12,348 euros to 12,564 euros at the start of 2027, and then to 12,900 euros in 2028. The curve of tax progression is to be flattened up to a taxable annual income of 70,600 euros. Taxpayers with higher earnings will benefit from this as well, although in percentage terms the largest gains go to those on middle incomes, according to the finance ministry.
Child benefit is to rise from the current 259 euros per child per month to 267 euros next year, and to 272 euros in 2028. The tax-free child allowances, the standard employee allowance for work-related expenses and the tax-exempt share of bonus pay for Sunday and public holiday work are also being increased.
There will, however, be no full compensation for what is known as cold progression for all taxpayers. This refers to inflation-driven tax increases caused by the progressive tax scale. The government justifies this with the decision to concentrate relief on low and middle incomes.
Alongside the higher top rate for high earners, the so-called tradesperson bonus is being cut from a current maximum of 1,200 euros to no more than 900 euros per year as part of the funding. The flat-rate tax on mini-jobs is being raised from two percent to five percent. In a separate legislative procedure, the government also intends to scrap a number of tax breaks.
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