Cold progression: Taxpayers will pay a good 23 billion euros in 2026 and 2027

Inflation will lead to an additional tax burden totaling a good 23 billion euros this year and next. The so-called cold progression will amount to around 10.8 billion euros in 2026 and a further 12.4 billion euros in 2027, as shown in the draft of the federal government's new tax progression report. Around 35.5 million taxpayers will be affected in 2026 with an average additional burden of 304 euros. For 2027 there will be 36 million with an average of 344 euros.

Cold progression occurs when wages and salaries rise to compensate for higher prices. Although employees can no longer afford it, they have to hand over a larger part of their income to the tax authorities because of the progressive tax rate.

The federal government is not planning to completely compensate for the cold progression. The coalition primarily wants to relieve the burden on lower and middle income earners and families, the Finance Ministry said. Families with two children would be relieved of more than 600 euros annually from 2028.

No room for maneuver in the household

“The budget currently offers no scope for further relief, especially for people who earn higher incomes,” the ministry said. In the past, federal governments had largely offset cold progression by shifting the boundaries of the income tax rate in line with inflation. In the coalition between the Union and the SPD, the Union is pushing for a compromise. So far, however, there have been no suggestions as to how the associated loss of tax revenue could be counter-financed.

The federal government has already taken this into account in its draft law for changes to income tax. This includes higher basic allowances of 12,564 euros for 2027 and 12,900 euros for 2028. According to the ministry, the child allowance will rise to 7,128 euros in 2027 and to 7,308 euros in 2028.