Overview
- The cabinet approved Finance Minister Lars Klingbeil’s draft on Wednesday, advancing a staggered income‑tax reform designed to deliver about €10 billion a year in relief once fully in force.
- Key measures include a higher basic allowance, a flatter progression up to €70,600, increased child benefits and a rise in the mini‑job employer flat tax from 2% to 5%.
- To pay for the relief the plan lowers thresholds for the 45% top rate to €250,000 and creates a new 47% rate from €280,000, plus other revenue changes that target very high incomes and some business income.
- The CDU‑run economics ministry publicly criticized the draft as a ‘hidden tax increase’ because it does not fully offset the so‑called kalte Progression, and economists, unions and industry groups warn many firms and some middle‑income earners could face heavier burdens.
- The bill now goes to the Bundestag and Bundesrat where amendments are likely and parts of the reform are set to take effect from 1 January 2027 with full impact by 2028, making the parliamentary process the next decisive battleground.