Government institutes tax breaks and increases child benefits
Germany has taken steps to help families and the working middle class retain more resources amid rising costs and inflation, with the introduction of changes in progressive taxation and an increase in child and youth benefits.
The German parliament has passed a law that aims to compensate for the effects of cold progression in income tax, where inflation pushes taxpayers into higher tax brackets, increasing their tax burden even if their real income hasn't increased significantly. This law, supported by SPD, Greens, FDP, Union, and AfD, will allow low- and lower-middle-income families to keep more of their income.
In addition to the tax changes, the child and youth benefit has been temporarily increased by €89 per child, paid in January 2023, to support families dealing with higher living costs. Other related measures include a one-time payment of €300, a €100 child support boost, and reductions in fuel taxes and public transport costs, all aimed at protecting consumers and families from energy price shocks.
The government estimates that these policies, combined with other subsidies, amount to a cost of about €30 billion dedicated to shielding consumers. According to calculations by the Greens, a family with two children and an income of 60,000 euros will be relieved by 306 euros next year.
The law also includes an increase in the basic allowance, which is the part of income that is not taxed. The basic allowance is being increased by 312 euros to 12,096 euros, and is set to rise further to 12,348 euros in 2026.
The child immediate allowance for families with low income is also set to increase by five euros to 25 euros per month, starting from the beginning of the year. The higher child benefit is set to be paid out in January. The child allowance is to be increased by 60 euros.
The implementation of these tax reliefs will take some time and will be visible on payslips after the administration updates. However, even if the law is passed before the end of the year, citizens are unlikely to feel the tax reliefs in January due to implementation delays.
Sven-Christian Kindler, the Green Party's budget spokesman, stated that the agreement brings a significant boost for families and the working middle class in Germany. However, SPD and Greens criticized the FDP for removing other projects from the bill, including investment incentives and better depreciation options for businesses.
Christian Lindner, the former Finance Minister, said that the state should not be a winner from inflation, and this would now be addressed. The budget committee did not provide information about the impact of the law on other taxes or benefits.
In sum, the compensation measures in Germany focus on progressive income tax reforms and direct increases in child benefits, both designed to ease the financial strain on families and the working middle class resulting from cold progression and rising inflation. These measures are expected to provide relief to millions of German families and contribute to a more equitable distribution of the economic burden.
- The German government, through a new law supported by various political parties, aims to lessen the burden of cold progression in income tax for low- and lower-middle-income families, allowing them to keep more of their income.
- In response to rising costs and inflation, the government has temporarily increased child and youth benefits, as well as implemented other measures such as a one-time payment, reductions in fuel taxes, and public transport cost reductions, all aimed at protecting families and consumers.
- The implementation of these tax reliefs and benefit increases, such as a raised basic allowance and increased child immediate allowance, are expected to provide significant financial relief to millions of German families, contributing to a more equitable distribution of the economic burden.
