Germany’s new governing coalition is planning to lower income taxes for small and middle-income earners, but disagreements are emerging over the details of the plan.
Berlin – Germany’s coalition government, comprised of the Christian Democratic Union (CDU), the Christian Social Union (CSU), and the Social Democratic Party (SPD), agreed in its governing contract to “lower income tax for small and middle incomes by the middle of the legislative period.” Now, as implementation begins, the devil is in the details. Even as both parties generally support the plan outlined in the coalition agreement, they disagree on the extent of the tax relief and how to handle higher earners.
The CDU also wants to significantly relieve higher earners, raising the threshold at which the top tax rate applies to 80,000 euros gross (for single households). The SPD even signaled a willingness to compromise on this point – provided the top tax rate is raised from 42 to 47 percent, according to the SPD magazine vorwaerts.de. Chancellor Merz, however, firmly rejected the proposal. “I strongly advise against increasing their burden any further,” he said, according to the news agency AFP.
Income Tax Plans from SPD and CDU Compared
Both parties agree on raising the basic allowance; It’s to be increased by 1,000 euros. But what exactly does that imply for you as a consumer? It depends entirely on which side prevails with its plans. The SPD’s plans primarily provide relief for low incomes, with significantly less relief for middle and high incomes. Here’s a breakdown of the savings under the CDU/CSU plans.
| Income | SPD Tariff annual reduction | Tax reduction in % |
| €2,500 | €190 | 8.4% |
| €5,000 | €174 | 1.9% |
| €7,500 | €118 | 0.6% |
| Income | CDU Tariff annual reduction | Tax reduction in % |
| €2,500 | €197 | 8.7% |
| €5,000 | €424 | 4.5% |
| €7,500 | €1,028 | 5.3% |
Family, single earner, 2 children:
| Income | SPD Tariff annual reduction | Tax reduction in % |
| €4,000 | €380 | 15% |
| €7,000 | €370 | 3.4% |
| €10,000 | €360 | 1.7% |
| Income | CDU Tariff annual reduction | Tax reduction in % |
| €4,000 | €380 | 15% |
| €7,000 | €526 | 4.9% |
| €10,000 | €726 | 3.4% |
Source: Figures from the DSi (German Taxpayers Association)
Union’s Income Tax Reform Brings More for Consumers on Paper – But There’s a Catch
Calculated purely mathematically, consumers benefit more from the Union’s plans regardless of income. However, according to Handelsblatt, this comes with a 111 billion euro loss of revenue for the state. Money that will likely have to be recouped through tax increases or spending cuts elsewhere.
CDU/CSU officials point out that the broad-based income tax cut will also lead to growth-related additional revenue, but calculations by the German Institute for Economic Research (DIW) put this figure at just over 30 billion euros. (Sources: Coalition Agreement, AFP, vorwaerts.de, Handelsblatt, German Institute for Economic Research) (sp)
