Overview
- The Bundesrat, which rejected the plan Friday, blocked a Bundestag‑passed law letting employers pay up to €1,000 tax‑free through June 30, 2027, a change expected to cut public revenues by about €2.8 billion.
- State governments said the measure shifted almost two thirds of the tax shortfall onto Länder and municipalities, while the proposed tobacco‑tax increase would benefit only the federal budget.
- The federal government can now ask the joint Mediation Committee of Bundestag and Bundesrat to work out a compromise on the blocked measure.
- Greens leaders called the outcome a “fiasko” for Chancellor Friedrich Merz, while business groups including DIHK and the Mittelstandsverband welcomed the stop as relief for small and mid‑sized employers.
- Attention is turning to structural fixes, with Manuela Schwesig urging lasting income‑tax relief for lower and middle earners and the Bundestag debating a Greens plan to cut statutory health insurance contributions from 2027.