Lindner plans to implement massive tax reductions.
In their efforts to combat the effects of rising prices, Finance Minister Christian Lindner seeks to ease the tax burden on taxpayers by an anticipated 23 billion euros by 2026. He intends to achieve this goal by modifying the income tax and salary tax rates in multiple phases, with his FDP coalition's leader in Berlin spearheading the effort. Lindner aims to combat what is known as "cold progression," a stealthy tax hike that transpires when a salary raise is fully consumed by inflation, yet still results in higher taxation. The "Bild" newspaper initially broke the story.
Lindner maintains that the ongoing budget talks are not at risk due to the high expenses, "so long as the coalition catalyzes the economy with daring actions," per sources from the government. The government's share is already factored into the budget planning. An update is slated for the fall, concurrent with the presentation of a new cold progression report. At present, the budget plans for the subsequent year feature an approximately 25 billion euro funding shortfall. According to Lindner's proposals, the tax-free allowance of the income tax and wage tax would rise retroactively on January 1st by 180 euros to 11,784 euros. This would entail no tax liability below this income level. Taxpayers are projected to save around 2 billion euros as a result.
As of January 2025, the tax-free allowance would again increase by 300 euros to 12,084 euros. Additionally, the wage tax rate would be shifted - this involves setting higher tax brackets at higher income levels than previously. Compared to current legislation, this shift would generate a tax reduction amounting to eight billion euros. For 2026, Lindner has proposed a further boost in the tax-free allowance of 252 euros to 12,336 euros. Yet another tax rate adjustment is planned, resulting in an annual tax relief of roughly 13.3 billion euros.
Nonetheless, Lindner's plans have invited criticism from the traffic light coalition. "Proposals that will cost the federal government, states, and municipalities billions and disproportionally benefit the affluent in the nation are unsuitable under the current circumstances," Green deputy faction leader Andreas Audretsch stated to the German Press Agency. The financial situation is troubling - and immediately addressing Ukraine and assistance for flood victims should be given priority. "The calamities in the flood regions will also contribute to additional expenses in the billions for the federal government, states, and municipalities," Audretsch cautioned.
In contrast, Union MP Sebastian Brehm assessed the relief as inadequate. Lindner is obliged by law to enact these changes, contends Brehm. "This is unassertive and fails to warrant any jubilation."
