Overview
- The Bundeskabinett approved Finance Minister Lars Klingbeil’s income‑tax draft on Wednesday, setting a plan that aims to deliver about €10 billion in annual relief once fully in force in 2028.
- Key measures include a stepwise rise of the basic tax‑free allowance to €12,900 by 2028, a later entry point for the 42% top rate at €70,600, higher child benefits and allowances, a larger Arbeitnehmer‑Pauschbetrag, and higher flat tax on mini‑jobs.
- The package is partly financed by earlier and higher top rates — 45% from €250,000 and a new 47% rate from €280,000 — with independent analyses saying roughly two thirds of the extra burden will fall on entrepreneurial and partnership income, prompting Mittelstand and business group objections.
- Economic institutes and trade unions argue the draft does not fully offset inflation‑driven 'cold progression', with outside estimates of a full correction costing well above the plan’s scope and critics saying many households will see only limited real gains.
- The decision exposed visible coalition tensions after a critical letter from the Economics Ministry and sharp public replies from Klingbeil; the bill now goes to the Bundestag and Bundesrat where changes and fights over financing are likely and parts are planned to take effect from 1 January 2027.