Up until the year 2026, - Lindner proposes tax relief of 23 billion euros.
The German Finance Minister, Christian Lindner, is planning to reduce the effects of rampant inflation and provide relief for taxpayers amounting to approximately 23 billion euros in the near future. Lindner's main objective is to combat a phenomenon known as "cold progression," which occurs when people's wages rise in line with inflation but still lead to higher taxes. A press conference in Berlin witnessed this announcement earlier this week.
Reports regarding Lindner's plans had already surfaced in the popular "Bild" newspaper. Despite the added costs, Lindner believes the ongoing budget consultations will not be jeopardized as long as the coalition helps invigorate the economy with bold initiatives. Sources in the government suggest that the federal budget already accounts for the aforementioned expenses. An updated progression report is set to be presented during the fall, coinciding with an amendment to the budget plan. Presently, there remains a budget gap of roughly 25 billion euros for the upcoming financial year.
In accordance with Lindner's plans, the basic tax-free allowance for income tax needs to be increased retroactively from 180 euros to 11,784 euros, effective January 1st. This change would result in no taxes for individuals with that level of income. Taxpayers can expect somewhere around a two-billion-euro relief as a result.
If everything goes as planned, the basic tax-free allowance will experience an increase of 300 euros to 12,084 euros starting from January 2025. Furthermore, tax brackets are slated to shift, meaning higher tax rates will be implemented at higher income thresholds. This would lead to an overall tax relief of eight billion euros, according to available information. In 2026, a further increase of the basic tax-free allowance by 252 euros to 12,336 euros is scheduled. Just like the previous instance, the tax brackets will be tweaked, augmenting the annual tax relief to around 13.3 billion euros.
Lindner's proposals have sparked backlash from the coalition. Andreas Audretsch, deputy Green faction leader, expressed his disapproval, stating that measures costing the federal government, states, and municipalities billions and largely benefiting the country's wealthiest citizens are not imperative at present. Audretsch underlined the unprecedented financial difficulties and emphasized the need to focus on Ukraine and aid for flood victims. The flood-affected areas are likely to incur considerable expenses for the federal government, states, and municipalities, he warned.
Conversely, the CSU member of the European Parliament, Sebastian Brehm, found Lindner's relief proposals inadequate. Brehm opined that the Finance Minister is simply fulfilling his legal responsibilities and nothing more. "This is modesty rather than merit," he commented.
