German Coalition Faces Tax Reform Discord as Klingbeil Warns Against Internal Opposition

Germany — Ekhbary News Agency

Germany's "black-red" coalition faces renewed discord over an income tax reform, just before the cabinet is set to approve the plan. Finance Minister Lars Klingbeil, speaking from a G20 meeting in the USA, sharply criticized a letter from the Economic Ministry. He declared that an "opposition within the government will ultimately harm everyone," highlighting the internal tensions.

Cabinet Set to Approve, But Disagreement Lingers

The Economic Ministry, led by Katherina Reiche, deemed the proposed reforms insufficient, according to the leaked correspondence. Despite this critique, the ministry affirmed its commitment to supporting the reform. The draft legislation, largely reflecting decisions from a July 1st coalition committee, aims to provide annual relief totaling ten billion Euros starting in 2028. Klingbeil defended his proposal, emphasizing its focus on families and middle-to-low incomes. To be fair, his suggestions for financing broader relief, such as increasing inheritance and top income tax rates, were rejected by the coalition partner. Ultimately, all parties had agreed to the current draft, which now moves to the Bundestag, where further modifications remain possible.

Industry Criticizes Scope as Reform Details Emerge

State Secretary Thomas Steffen from the Economic Ministry had urged the Finance Ministry to consider additional "relief and reform measures" beyond the current income tax bill, specifically mentioning action against "cold progression." This phenomenon occurs when inflation-compensating wage increases lead to higher tax burdens, effectively stagnating or reducing purchasing power. The German Industry Federation (BDI) also voiced strong disappointment. Deputy Chief Executive Holger Lösch stated the draft "hardly deserves the name reform" and offers "no noticeable relief signal for companies," instead creating "additional burdens." The reform includes a higher basic tax-free allowance, a later-applied top tax rate, increased lump-sum deductions for work-related expenses, and higher child benefits. Notably, the maximum tax-free hourly wage for Sunday and holiday bonuses will rise from 50 to 75 Euros, allowing employees to retain more of their earnings. Counter-financing measures involve an earlier application of the "rich tax" for very high incomes and the introduction of a second, higher "super-rich tax" bracket. The Finance Ministry confirmed the reform provides "partial compensation" for cold progression, specifically for smaller and middle incomes.