Lindner puts pressure on relief measures - draft sent out
After the agreement among traffic light coalition heads on the budget and a growth package, German Finance Minister Lindner presents plans for tax relief to the tune of around 23 billion Euro for the citizens. Some of the lower tax revenues will have to be shouldered by the states, so the Bundesrat's approval is required.
Christian Lindner, the Finance Minister and FDP leader, is pushing hard on the tax relief issue. Only a few days after the budget agreement for 2025, he sent his draft for tax relief in the billions to other ministries, according to government sources. The income tax rate for 2025 and 2026 is to be adjusted in two steps to counteract inflation. Lindner had estimated the relief measures, including other changes, to amount to around 23 billion Euro.
The cabinet is expected to approve the draft for the second tax law of the year on July 24, according to government sources. Lindner had announced the changes in June. Chancellor Olaf Scholz, Vice-Chancellor Robert Habeck, and Lindner reached an understanding on the budget for 2025 and a growth package only on July 5. The first tax law for 2024, which included numerous smaller tax law adjustments, was passed by the cabinet on June 5.
More Child Benefit and Tax Class Merger
The draft for tax adjustments also includes the agreed increase in child benefit from January 1, 2025, by five Euro to 255 Euro per child per month. This results in additional expenditures of 1.09 billion Euro. In addition, the basic deduction and the child deduction are to be increased. The long-planned merger of tax classes III and V into tax class IV is also to be implemented. The tax burden is intended to be more fairly distributed among married couples and life partners, according to the draft.
The federal government, states, and municipalities are to be burdened with a total of 12.83 billion Euro according to the draft, based on a full fiscal year. The states will bear around 5.1 billion Euro of this, the federal government around 5.9 billion Euro. For the years 2025 and 2026, the draft sets the burdens for the public coffers at 7.015 billion Euro and 12.395 billion Euro, respectively. The changes are subject to approval in the Bundesrat. The traffic light coalition therefore also needs the approval of Union-led states in the Federal Council.
The tax relief plans were met with reservations from SPD and Green Party experts before the budget agreement. They criticized the relief measures as compensation for the cold progression, which disproportionately benefits higher incomes. According to the draft, the tariff thresholds for income tax will be shifted to counteract inflation from January 1, 2025, by 2.5%. This would result in reduced revenues of 3.06 billion Euro in 2025 and 3.535 billion Euro in 2026. From January 2026, there will also be a shift of 2.0%, which would result in tax losses of around 2.5 billion Euro.
- Despite the reservations from SPD and Green Party experts, German Finance Minister Lindner, pushing for tax relief, included plans for adjusting income tax rates in his draft for the Annual Tax Act.
- The draft for the Annual Tax Act, presented by Lindner after the budget agreement, also includes propositions for merging tax classes III and V into tax class IV to distribute the tax burden more fairly among married couples and life partners.
- The draft for tax relief, sent by Lindner to other ministries after the budget agreement for 2025, includes changes such as the increase in child benefit and the shifting of tariff thresholds for income tax to counteract inflation.
