(de-news.net) – A 10 billion euro annual income tax relief package targeted at low- and middle-class taxpayers and families has been approved by the German Cabinet. Coalition disputes over bracket creep and the preferential treatment of Sunday and holiday work under collective bargaining agreements are impeding the reform, which would go into full effect in 2028.
A draft income tax reform aimed at reducing the tax burden on low- and middle-income taxpayers and families with children has been approved by the German Cabinet, setting the stage for further debate over how the relief should be distributed and how the system should address rising incomes. The Finance Ministry estimates that the package would provide about 10 billion euros in annual tax relief. The measures are to be introduced in two phases beginning in 2027, with the reform expected to reach its full effect in 2028.
Finance Minister Lars Klingbeil (SPD) said the proposal places particular emphasis on families with children. Under the planned measures, families could have as much as 600 euros more available per year from 2028. The package would raise the basic tax allowance, adjust the income tax brackets, increase child benefits and raise the employee lump-sum deduction. Taken together, the measures are intended to alter the distribution of tax relief across different groups of taxpayers. At the upper end of the income scale, annual earnings above 280,000 euros would be subject to a new top rate of 47 percent.
The proposal has, however, exposed differences within the governing coalition over the scope and design of the tax changes. CDU Economy Minister Katherina Reiche has criticized the absence of measures to compensate for so-called bracket creep, under which taxpayers can face higher effective tax burdens as their incomes increase. Klingbeil, meanwhile, has stressed that his ministry’s plans had already been approved by the coalition committee. He also criticized the way the Economy Ministry communicated its objections, particularly with an election in Saxony-Anhalt approaching.
Plan faces pushback over collective bargaining rules
The Union has indicated that it intends to seek further changes during the parliamentary process, meaning that the Cabinet-approved draft is not necessarily the final form of the legislation. Fritz Güntzler, the CDU’s fiscal policy spokesperson, welcomed the proposed relief for lower- and middle-income taxpayers and families. At the same time, he said lawmakers would examine whether the basic and child allowances adequately reflected subsistence requirements once the relevant assessment was available. The Union would also consider, together with budget policymakers, whether additional scope existed to provide further compensation for bracket creep.
A separate dispute centers on the treatment of premiums paid for work performed on Sundays and public holidays. Under the government’s proposal, such payments would be exempt from social security contributions for employees covered by collective bargaining agreements, while workers without comparable collective bargaining arrangements would not receive the same treatment. Güntzler argued that collective bargaining coverage should be strengthened without creating an imbalance against companies and employees outside such agreements. He cautioned that the proposed distinction could place non-unionized businesses and their workers at a disadvantage.
Reiner Holznagel, president of the German Taxpayers’ Association, has likewise called for equal treatment. He argued that the particular nature of work performed at night, on Sundays or on public holidays does not depend on whether an employer is covered by a collective agreement. From that perspective, the basis for the proposed distinction remains a central point of contention.
The Finance Ministry has defended the measure as a direct implementation of the governing coalition’s agreement. It has said that strengthening collective bargaining autonomy and collectively agreed employment remains an established government objective and that the provisions concerning Sunday and holiday work were agreed upon by the coalition committee. The ministry therefore maintains that the draft reflects the coalition’s existing commitments rather than introducing a new policy direction.
