Federal government plans income tax reform: Cabinet decision expected on Wednesday

Berlin. The black-red federal government wants to launch the controversial income tax reform this week. According to information from the German Press Agency, the final details were agreed on increasing the tax-advantaged Sunday and public holiday surcharges. This means that the package could be decided in the cabinet on Wednesday, according to the Ministry of Finance. This is the first formal step in the legislative process, after which the Bundestag will deal with the plans.

The reform is intended to particularly relieve the burden on families with children and taxpayers with low and middle incomes. From 2028 onwards, the relief will amount to ten billion euros annually.

They come about, among other things, through a higher basic tax allowance, above which income tax has to be paid, and a later top tax rate. The flat rate for so-called advertising costs also increases, as does child benefit. The maximum permissible hourly wage for tax-free Sunday and public holiday surcharges will be increased from 50 to 75 euros. This means employees can keep more of their bonuses.

To provide counter-financing, the tax on the rich should take effect a little earlier, and a second, slightly higher level, the so-called super-rich tax, will also be introduced.

There had recently been criticism because Finance Minister Lars Klingbeil (SPD) is not planning any general compensation for the cold progression caused by inflation. It was therefore said that there could be no real relief. According to the draft, this decision should remain the same. “There is a partial compensation for the cold progression, namely for those with lower and middle incomes,” says the Ministry of Finance.

The draft is a tax policy disappointment and hardly deserves the name reform, said Holger Lösch, the deputy general manager of the Federation of German Industries (BDI). "There can be no talk of a noticeable signal of relief for companies. The opposite is true, additional burdens arise," explained Lösch.

He spoke of small-scale corrections with minimal relief effects that did not replace real collective bargaining reform. “The announced ten billion euros in relief are largely dissolving in practice,” said Lösch. Not even the cold progression is compensated for, although this has largely been standard for the past eleven years.