The Minister of Finance has announced a tax cut in view of the high prices. Now he is presenting his plans. There has also been criticism: Top earners would be better off than poorer ones.
Finance Minister Christian Lindner wants to relieve 48 million citizens of taxes. Overall, they should save more than ten billion euros in the coming year, as the FDP politician announced on Wednesday in Berlin: “Pensioners, employees subject to social security contributions, the self-employed: people across the board are affected.”
In addition to an adjustment of the income tax rate, child benefit and the child allowance are also to be increased. The plans, which have not yet been agreed and are controversial in the coalition, in detail:
The problem of high inflation
Due to the Russian war in Ukraine, the inflation rate in Germany has risen significantly, mainly due to higher energy prices. In July, too, the inflation rate remained at over seven percent. “For many people, daily life has become much more expensive,” said Lindner. At the same time, the economic perspective is more fragile. “So we’re in a situation where action has to be taken.” Through the tax reform, he wants to ensure that the state earns less from inflation.
Because of the so-called cold progression, many are threatened with a “secret tax increase”, according to Lindner: Although their purchasing power is falling because of the high inflation, taxes remain high. Or salary increases, which are actually eaten up directly by inflation, lead to higher taxation.
The idea of tax law is that strong shoulders carry more than narrow shoulders, said Lindner. “Due to the development of inflation, however, people whose shoulders have not become broader at all are still pushed up and burdened with the tax rate.”
Adjustments in the tax rate: basic allowance and benchmarks
In order to compensate for this, Lindner wants to turn the screws on the income tax rate. The basic tax-free allowance, i.e. the income up to which no tax has to be paid, should increase – from the current 10,347 euros to 10,632 euros in the coming year and 10,932 euros in 2024. In addition, the top tax rate of 42 percent should only increase in the coming year a taxable income of 61,972 euros, and then only at 63,515 euros in 2024.
Lindner deliberately does not want to touch the limit for the even higher wealth tax rate of 45 percent because he does not believe that additional relief is necessary in this income bracket. The FDP leader emphasized that he was acting differently than his predecessor, today’s Chancellor Olaf Scholz. The SPD politician also relieved the richest in his reform.
Who benefits from it and how much
In percentage terms, low earners are relieved much more than top earners – but in absolute numbers it looks different. A citizen with a taxable income of 20,000 euros should pay 115 euros less in taxes in the coming year. With an income of 60,000 euros, the relief according to figures from the Ministry of Finance is already 471 euros. For even higher incomes, they are capped at 479 euros.
Greens and SPD consider this to be socially unbalanced. However, Lindner emphasized that the cap is set at 1.5 times the average income. “It’s not the top floor of society, it’s the qualified specialists and executives, the technicians, the engineers, these are the people who still receive wages from the unions.”
Little cheering from coalition partners
The SPD chairman Lars Klingbeil welcomed the key points of the finance minister in principle. But it is so, “that the top earners are relieved above average,” he told the broadcasters RTL / ntv. That is why it is now necessary to look in detail at how to walk a common path. Green Party leader Omid Nouripour also reacted with reservations. “Of course, the finance minister can make suggestions. In the end, we will discuss together in the coalition which measures are sensible and targeted relief,” he told the German Press Agency.
Nouripour emphasized: “For autumn and winter, a package of measures is needed that relieves people with little money, with small and middle incomes in particular – especially when the state cannot provide unlimited relief.” Klingbeil also mentioned accuracy, a focus on small and medium incomes and speed in the adoption as criteria for further relief.
Lindner, on the other hand, emphasized that one should not forget those “who give away a lot of the results of their creative power in order to maintain social peace in our country and to keep the state able to act”.
What the opposition says
Basic approval came from the CDU chairman Friedrich Merz. “The Finance Minister’s proposals are going in the right direction,” Merz told dpa in Berlin. The opposition leader in the Bundestag saw the criticism from the ranks of the SPD and the Greens as evidence of the “shameful state” of the federal government. “It shows the state in which this government is. It is now arguing about practically every issue.”
Child benefit should also increase
In addition, Lindner is planning relief for families with children. The child benefit is to rise in two stages and also be standardized. In the coming year, there will be 227 euros per month for the first, second and third child, and 250 euros from the fourth child. In 2024, the rates for the first to third child are to be raised again – to 233 euros. The child benefit is currently 219 euros for the first and second child, 225 euros for the third and 250 euros from the fourth child. The child tax allowance is also set to increase.
And what about this year?
The taxpayers’ association welcomed Lindner’s plans for the coming year. But it is not a real relief package. The income tax allowances for children and adults would have to be adjusted to the price increase by law anyway. In addition, the cold progression will also strike in the current year with high inflation. Even the 9-euro ticket and the tank discount couldn’t compensate for that.