German Cabinet Approves €10 Billion Income-Tax Reform

The Federal Government of Germany approved a €10 billion income-tax reform on Wednesday to increase disposable income for low- and middle-income households. The measures focus on families with children and will be phased in through 2028, including a raise in the basic tax-free allowance and an increase in monthly child benefits to €272.

To fund the reform, the government is introducing a new 47% tax rate for annual incomes exceeding €280,000, while the 45% rate will now apply to incomes starting at €250,000. Finance Minister Lars Klingbeil described the measure as a "super-rich tax" designed to create a fairer system.

The reform has sparked friction both internally and externally. The conservative-led economy ministry stated the changes were "not far-reaching enough," indicating tensions within the ruling coalition. Meanwhile, business groups including the BDI and DIHK argued that higher taxes on top earners would discourage innovation and investment.