Federal Finance Minister Christian Lindner is planning tax relief worth billions in the coming years, from which both low-income earners and high-income earners would benefit. The planned adjustment of wage and income tax by 2026 will total more than 23 billion euros, Lindner confirmed after a cabinet meeting. “It is a matter of fairness to adjust the tax burden to inflation,” he continued.
FDP leader Lindner wants to adjust the tax system to inflation for two more years and thus combat the so-called bracket creep. Otherwise, taxpayers could slip into a higher tax bracket when wages increase and end up with less purchasing power than before.
After the Russian attack on Ukraine in 2022, inflation jumped to its highest level in decades for a long time. Inflation has now returned to normal, but is still above the ECB’s target. With the Inflation Compensation Act, the traffic light government made up of the SPD, Greens and FDP had decided to adjust tax rates for 2023 and 2024. Lindner now wants to go beyond that.
“The adjustment of the tax exemption of the subsistence level is constitutionally mandatory with retroactive effect for this year and the following years,” the Finance Ministry said in response to a query. The additional relief from bracket creep is not a constitutional requirement, but a requirement of fairness.
“The minister wants to protect citizens from secret tax increases due to inflation.” Based on the traffic light agreement for 2023 and 2024, the ministry assumes that there will also be an internal government agreement for 2025 and 2026. “However, final figures will not be available until autumn. At the moment, this is the current forecast for the initiation of legislation.”
Lindner’s plans are likely to make the traffic light coalition’s budget discussions even more difficult. SPD finance politician Michael Schrodi told the Reuters news agency that the ten percent with the highest incomes would benefit the most. “The budget discussions are not a one-way street: the Federal Finance Minister must also prioritize and cannot just refer to other ministries.” The SPD is focusing on internal, external and social security, but not on tax relief for top earners.
Green Party finance politician Katharina Beck expressed similar views: You cannot demand drastic savings from other ministries, for example with consequences for humanitarian aid in Gaza, and then present such plans. “There is a budget gap of over 25 billion, which is also causing us difficulties in defense and infrastructure investments. In this context, bringing general tax cuts in the double-digit billions into play is dubious.” In Lindner’s circle, however, it was said that the budget discussions would not be at risk if the traffic light coalition provided bold impulses for more economic growth.