With inflation rapidly eating up people’s disposable incomes, the German Federal Finance Ministry has unveiled a new package of tax relief measures to help ease the burden. Among other things, Finance Minister Christian Lindner wants to raise the basic allowance and income thresholds for taxation, and increase child benefits. However, the proposal has already come in for sharp criticism. 

Lindner unveils tax relief proposal to compensate for inflation in Germany

“We are in a situation where action must be taken,” Lindner said during a press conference on Wednesday, justifying his plan to cut taxes by a total of more than 10 billion euros next year. He emphasised that, with inflation pushing up the price of everything from food to energy, “anything else would not only be unfair, but would also damage our economy.” 

Lindner’s plan - which he expects to benefit 48 million people “in the broad middle of society” - is designed to help ease the burden of rising inflation. Rather than directly cutting taxes, the proposal is to raise taxation thresholds, reducing the average person’s tax burden by 192 euros. “Employees and low earners, pensioners and the self-employed, students with taxable part-time jobs and above all families benefit,” Lindner wrote in a guest article for FAZ. 

Government plans to raise tax thresholds and increase child benefits

From 2023, therefore, the Finance Ministry would raise the basic tax-free allowance - under which no taxes are paid on income - from 10.347 euros to 10.632 euros. It would rise again in 2024 to 10.932 euros. 

The high tax rate of 42 percent, which is currently payable on income above 58.597 euros, will only apply to incomes above 61.972 euros in 2023, and 63.521 euros in 2024. However, the threshold for the top tax rate of 45 percent will remain in place at 277.826 euros. 

Lindner also confirmed that he plans to increase child benefit rates from 2023. Families would receive an extra 8 euros for their first two children from next year, making the total benefit 227 euros per child per month. For the third child, parents will receive 2 euros more (227 euros per month), and for the fourth child the benefit will remain the same at 250 euros. From 2024, parents would receive an extra 6 euros per month for each of their first three children. 

In total, the plans would see revenue for the tax office drop by 10,12 billion euros in 2023, and by 17,5 billion euros in 2024. 

Tax relief would benefit the rich the most, critics argue

Lindner’s plans have already been attacked by figures both inside and outside the government. The FDP’s coalition partner, the Greens, have in particular criticised Lindner’s proposal as “outdated” and “socially imbalanced,” saying that it benefits top earners above all other people. 

“High and highest income groups would receive more than three times as much [relief] as people with low incomes, who actually need it most urgently,” said Green parliamentary group leader Andreas Audretsch to dpa. Financial policy spokesperson Katharina Beck added in a statement to RND, “It should be the other way around: strong shoulders should have to carry more than low-income ones and not be disproportionately relieved.” 

Ulrich Schneider of the Paritätischer Wohlfahrtsverband social organisation said that Lindner's proposal would benefit the rich and set “completely the wrong priorities.” He said it would “even increase the already striking income inequality in Germany.” 

The SPD mayor of Berlin, Franziska Giffey, told Welt that tax cuts and blanket increases in child benefits were not the kind of targeted relief measures that the current situation called for, while Left chairperson Martin Schirdewan said to AP that Lindner’s proposal was an “expression of deeply dubious financial policy.” He claimed that 90 percent of the 10 billion euros would go to the top 30 percent of earners. 

Other figures questioned why Germany had shied away from proposals to impose an excess profit tax on large international companies that are profiting from the current crisis. For instance, the UK has recently imposed a 25-percent “windfall tax” on oil and gas companies that are raking in huge sums. 

FDP General Secretary Bijan Djir-Sarai dismissed the Greens’ criticisms in particular as unfounded, reiterating that the adjustments were designed to lower the “tax burden of the hard-working middle” and pointing out that the relief amount was capped for top earners. “The relief is fair and necessary so that people benefit from a wage or salary increase despite the high inflation and do not have to pay a higher tax burden,” he told dpa.

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