Germany's cabinet approves €10 bn family tax relief, new top rate
Germany's cabinet has approved a €10 billion tax package that boosts child benefits and allowances, funded by a new 47% top income tax rate.
Germany's federal cabinet has given the green light to a tax reform package worth approximately €10 billion, designed to increase the disposable income of low- and middle-income households, with a particular focus on families with children. The measures are slated for phased introduction, with full implementation expected by 2028.
Under the plan, child benefit will rise to €267 per child per month in 2027, up from the current €259, and will further increase to €272 in 2028. The basic tax-free allowance is also set to climb to €12,564 in 2027 and then to €12,900 the following year.
To finance these measures, the government will introduce a new 47% tax rate for annual incomes exceeding €280,000. The existing 45% top rate will now apply from a taxable income of €250,000. Finance Minister Lars Klingbeil, a member of the Social Democrats, framed the change as a matter of fairness, stating that those with the very highest incomes must make a greater contribution.
Klingbeil noted that a middle-income family with two children would have more than €600 extra per year available from 2028. He added that the coalition is ensuring that a little more is left at the end of the month for families.
The government anticipates a tax revenue shortfall of €1.55 billion this year, a figure projected to grow to €5.6 billion by 2028, even after accounting for the offsetting financing measures.
The reform has drawn sharp criticism from business associations. The BDI industry association labelled it a disappointment in terms of tax policy, with its representative Holger Loesch noting a lack of tangible relief for businesses. Marc Tenbieg of the Mittelstand association DMB warned that higher taxes on top earners would hit many successful small and medium-sized enterprises and discourage investment.
Helena Melnikov, chief executive of the German Chamber of Commerce and Industry (DIHK), argued that the measure burdens precisely those businesses that invest, train apprentices, and create jobs, leaving them with fewer resources for innovation and hiring.
Tensions within the ruling coalition were also visible. The economy ministry, led by the conservatives, approved the reform but expressed in a letter that it was not far-reaching enough. Klingbeil dismissed the public criticism, asserting that coalition partners share responsibility for governing the country.