Government Council endorses enlarged tax reductions due to rising inflation
The federal government is currently discussing extensively about a tax cut as a response to inflation. The Finance Minister's proposal for this tax cut is now priced higher than initially anticipated. However, the traffic light coalition has reached a consensus on this matter.
According to an inside source, the government's tax cut plan, proposed by Finance Minister Christian Lindner, is now estimated to be 260 million euros more expensive than initially thought. This revised plan aims to adjust the tax rates to prevent people from sliding into higher tax brackets due to inflation, even with wage increases. However, these wage increases fail to provide people with enhanced purchasing power due to inflation.
The coalition is once again embroiled in controversy over this project. Lindner accused the Greens of obstructing the Bundestag from voting on these changes this week. In response, the Greens argued that the changes would only be debated by the cabinet by Wednesday, and subsequent integration into the ongoing tax development law procedure would still be required.
The cabinet draft includes an increase of 312 euros to the basic tax allowance in 2025, making it 12,096 euros. This is 12 euros more than the previously planned amount. In 2026, the basic tax allowance will rise to 12,348 euros. Additionally, the tariff progression will be shifted according to the inflation rate of 2.6%.
This means that the tax cut will increase by approximately 260 million euros every year. The draft explains, "The (...) proposed adjustments to counteract the 'cold progression' in the income tax tariff will result in an annual revenue loss from the tax assessment period 2025 of around 205 million euros, with an additional loss of around 55 million euros from the tax assessment period 2026, totalling 260 million euros annually."
Two existing legislative proposals from the ministry, currently with the Bundestag, are seeking tax cuts totaling 23 billion euros. The coalition factions SPD, Greens, and FDP intend to introduce these changes through a motion during the ongoing legislative proceedings.
The ongoing debate around the tax cut proposal has resulted in the Finance Minister's plan becoming more expensive than initially anticipated, with an additional cost of 260 million euros each year. Moreover, the federal government's tax policy now includes a revision to adjust tax rates to mitigate inflation's impact on tax brackets.
