Germany’s cabinet approved a €10 billion ($11.6 billion) income-tax reform package Wednesday, introducing relief for middle-income families and raising taxes on the highest earners as part of a phased overhaul that will take full effect in 2028.
Finance Minister Lars Klingbeil, a member of the ruling Social Democrats, called the measure a “super-rich tax” aimed at making the system fairer. “We are providing relief to families with children,” he said. “Those with the very highest incomes must make a somewhat greater contribution.”
Under the plan, child benefit will rise to €267 per child per month in 2027 from €259 currently, then increase further to €272 in 2028. A middle-income family with two children will gain more than €600 a year in extra disposable income starting in 2028, according to the government.
The basic tax-free allowance will climb to €12,564 in 2027 and €12,900 by 2028. Meanwhile, the existing 45% top income-tax rate will apply to taxable income beginning at €250,000, while a new 47% bracket will be levied on annual income above €280,000.
The reform carries significant fiscal costs. The finance ministry estimates a revenue shortfall of €1.55 billion for the current year after offsetting financing measures, rising to €5.6 billion by 2028.
Business groups were largely unsatisfied. Holger Loesch of the BDI industry association described the plan as a “disappointment in terms of tax policy,” adding, “There’s no sign of any tangible relief for businesses.” Helena Melnikov, chief executive of the German Chamber of Commerce and Industry (DIHK), warned that the higher taxes on top earners would burden businesses that invest, train apprentices and create jobs, leaving fewer resources for innovation and hiring.
Marc Tenbieg of the Mittelstand association DMB cautioned that the increased taxes on high earners would also hit many successful small and medium-sized enterprises and discourage investment.
The Economy Ministry, led by conservatives, approved the reform but in a letter to the finance ministry said it was “not far-reaching enough.” Klingbeil dismissed public criticism, noting that coalition partners shared responsibility for governing the country.
The exchange rate cited in connection with the package was $1 = 0.8636 euros.
