What the federal government has agreed on for the budget

It was a marathon negotiation between the party leaders on Wednesday evening. In the end, the black-red coalition decided not to implement some planned tax increases and social cuts. The time pressure was great because the so-called adjustment meeting for the 2027 budget is taking place in the Budget Committee today. The final decisions on the draft budget are made there.

An overview of what was decided:

Electricity tax

For the time being, the Union has not been able to get its wish for a reduction in electricity tax for private households to prevail in the coalition. The Union and SPD budget holders “regrettably” found no counter-financing in their discussions on the 2027 federal budget, as Union parliamentary group leader Thorsten Frei (CDU) said.

In the coalition agreement, the Union and the SPD agreed to reduce electricity taxes for everyone to the European minimum. However, this has so far only been implemented for the manufacturing industry and agriculture and forestry.

It is unlikely that a last-minute solution to the electricity tax will be possible. Theoretically, the necessary 5.4 billion euros could still be found in the budget committee's adjustment meeting.

Sugar tax

The sugar tax on heavily sweetened drinks should not come until January 1, 2028, instead of July 1, 2027 as previously planned. The Union had advocated for a later start, also to enable manufacturers to change recipes.

The tax will now be levied in three instead of two stages based on the sugar content, as the Grocery Newspaper first reported. It should apply, among other things, to colas, lemonades, iced teas, energy drinks and fruit juice drinks with added sugar.

The Union and the SPD had agreed to introduce the tax as part of the passed law for stable health insurance contributions. The background was recommendations from an expert commission set up by the Ministry of Health, which made reform proposals.

Social benefits

In the social sector, originally planned cuts are being defused. Housing benefit and the immediate child allowance should largely remain in their current form, as SPD parliamentary group leader Matthias Miersch announced.

The immediate child supplement of 25 euros per month should therefore continue to be paid, but not to families receiving asylum seeker benefits.

When it comes to housing benefit, only the adjustment of the benefit amount should be suspended. Initially, the federal government introduced drastic cuts in housing benefit, which should take effect next year. This should save the federal and state governments more than a billion euros. 1.3 million households receive housing benefit. You can now continue to count on support. However, the performance should not be increased for at least one year.

The basic security, the so-called standard requirement, should also not be increased. Frei said that a solution would be found for the standard needs assessment law “that will keep the benefits constant until the summer of 2028.”

The shortened payment of maintenance advances to single parents is also apparently off the table. However, the current draft law now provides for an income limit. In the future, single parents who earn more than 40,000 euros a year can no longer expect the state to step in with an advance on maintenance if the other parent does not pay.

Income tax

The Union is not giving up its goal of completely compensating for the cold progression in income tax caused by inflation. If it is not possible to finance this now, relief could be given “retroactively if necessary,” said Frei. According to previous information, this would cost the federal, state and local governments 4.2 billion euros.

“Cold progression” is when wage increases that only compensate for inflation lead to a higher tax burden and as a result real purchasing power remains the same or even falls.

The demand is aimed at the planned income tax reform, which is due to come into force at the beginning of 2027. The bill from Finance Minister Lars Klingbeil (SPD) currently provides relief that will amount to ten billion euros annually from 2028. Small and medium income earners and families with children in particular should benefit. To provide counter-financing, the “rich tax” for very high incomes should, among other things, take effect a little earlier.

Plastic and sparkling wine tax

An agreed new tax on plastic packaging will not be levied next year. According to the Ministry of the Environment's plans, the tax should be introduced from mid-2027 and amount to 550 euros per ton of plastic. According to the draft law, revenue of 670 million euros was expected for 2027. From 2028 it should be around 1.5 billion euros annually.

There will also no longer be an increase in the sparkling wine tax.

Mood in the coalition

The government factions met for special meetings on Wednesday evening to assess the status reached. While the SPD finished after three quarters of an hour, the Union met for around three hours. The failure to reduce the electricity tax or the failure to compensate for the cold progression is causing “a lot of discontent in the CDU/CSU parliamentary group,” describes ARD correspondent Nicole Kohnert in the Tagesthemen. Many in the group are dissatisfied with this.

Chancellor Friedrich Merz is also coming under pressure. Kohnert recalls that he made a promise to reduce electricity taxes for everyone. "He couldn't keep that promise now."

In the SPD, however, the results put people in a better mood. The members of the group went home “very elated,” said Kohnert.