Status: 11/10/2022 5:02 p.m
In view of the high inflation, the Bundestag has decided on tax breaks and further relief for families. 48 million people should benefit from it. In addition, a new regulation of the CO2 tax is to come.
The Bundestag has introduced tax relief for 48 million citizens. The Inflation Compensation Act, which was passed with a large majority, is intended to completely offset the effects of high inflation on income tax. In addition, there should be the largest child benefit increase in the history of the Federal Republic.
As Parliament decided, the state will forgo tax revenue of around 50 billion euros over the next two years. The changes can only come into force once the Federal Council has approved them.
Tax system is adapted to high inflation
With the law, the traffic light government wants to prevent the state from benefiting from the currently high prices in terms of income tax. The cold progression – a kind of inflation-related secret tax increase – is cushioned. This occurs when there is high inflation, as is currently the case with the Russian war in Ukraine and the subsequent energy crisis in Germany. Forecasts assume that the inflation rate could be over seven percent in the coming year.
High inflation rates reduce the purchasing power of consumers because they can buy less for one euro. If the salary rises less than inflation, you still have to pay high taxes, but you can afford less.
Finance Minister Christian Lindner (FDP) recently argued: If an income of actually 43,000 euros only has a purchasing power of 39,000 euros in the coming year due to inflation, the state should not levy as many taxes as if there were still 43,000 euros purchasing power.
To compensate for this, the government is turning the screws on the income tax rate. The basic allowance, i.e. the income up to which no tax has to be paid, is to increase by 561 euros to 10,908 euros in the coming year. In 2024 it is to be raised to 11,604 euros.
In addition, the top tax rate of 42 percent in the coming year will only apply to taxable income of EUR 62,827. It is currently due from as little as 58,597 euros. In 2024, this benchmark would rise to 66,779 euros. The federal government is deliberately not touching the limit for the even higher tax rate for the wealthy of 45 percent because it does not believe that additional relief is necessary in this income bracket.
increase in child benefit
Families can expect additional relief: child benefit is to be raised to a standard 250 euros per month and child. That means a plus of 31 euros for the first and second child and a plus of 25 euros per month for the third child. The coalition had additionally agreed on this measure at short notice.
The child allowance, from which those on higher incomes benefit, as well as the tax-deductible maximum maintenance amount, for example for studying children, will also be increased.
The increase in child benefit is intended to relieve families because they suffer more from the rising cost of living than households without children. At the same time, the higher child benefit should also be a step towards basic child security. According to the will of the SPD, Greens and FDP, the basic security for children should in future ensure the subsistence level for every child and replace previous individual benefits for parents.
Sharing of CO2 costs
The Bundestag also passed a regulation for the distribution of the costs for the climate tax between tenants and landlords. So far, landlords have been able to fully pass on the CO2 tax on heating oil and natural gas that has been due since the beginning of 2021 to the tenants.
In future, the additional costs are to be distributed among tenants and landlords in a tiered model in such a way that tenants have an incentive to save energy and landlords have an incentive to make structural improvements. The landlords bear a higher share (up to 95 percent) of the climate tax, the more carbon dioxide emissions their building causes, for example because of an old heating system or poor insulation. If a house is in good energy condition, the tenants pay the larger share of the CO2 tax (up to 100 percent).
housing benefit reform
In addition, the Bundestag passed a far-reaching reform of the housing allowance. As a result, the social benefit will benefit more people from next year and will also be higher: instead of around 600,000 households recently, around two million households will be entitled to housing benefit in the future. The average amount is expected to increase significantly from around 180 euros to around 370 euros per month.
The housing benefit will be restructured at the same time. In the future there will be a permanent heating cost component that will be included in the calculation of the housing benefit as a supplement to the rent or burden to be taken into account. A climate component takes into account rent increases due to energy measures. In addition, the general formula for calculating housing benefit has been changed.