Overview
- The federal coalition agreed a package that is to take legal effect on January 1, 2027 and aims to provide about €10 billion a year in tax relief focused on low and middle incomes.
- Key measures include higher basic and child allowances, a staged rise in child benefit through 2028, a flatter middle‑rate progression to ease 'cold progression', and earlier higher top rates with 45% from €250,000 and 47% from €280,000.
- Several state premiers have publicly demanded explicit federal compensation for revenue losses, and constitutional rules that split income‑tax revenue between the federal government, Länder and municipalities make Bundesrat consent crucial.
- Business groups and CDU critics warn the earlier top rates will hit many pass‑through firms taxed via personal income tax, with an IW analysis estimating about a €2 billion annual drag on the economy.
- Finance ministry examples show two‑earner families with children gain the most—roughly €600–700 a year—while singles, childless households and very low earners see smaller benefits and the next steps are technical talks on compensation mechanics before a Bundesrat vote.