By Maria Martinez
BERLIN, Sept 2 (Reuters) – Germany’s cabinet approved tax cuts worth about €10 billion ($11.6 billion) on Wednesday aimed at boosting disposable income for low- and middle-income households, particularly families with children.
The measures will be introduced in stages and take full effect in 2028, the finance ministry said. The coalition government plans to offset part of the cost by raising taxes on top earners, a move criticised by business groups.
Finance Minister Lars Klingbeil said a middle-income family with two children would have more than €600 a year extra available from 2028.
“We are providing relief to families with children,” Klingbeil said. “We are ensuring that a little more is left at the end of the month.”
Child benefit will rise to €267 per child per month in 2027 from €259 currently, before increasing to €272 in 2028. The basic tax-free allowance will also increase to €12,564 in 2027 and €12,900 a year later.
NEW TAX RATE FOR TOP EARNERS
Under the plans, the existing 45% top income tax rate will apply from taxable income of €250,000, while a new 47% rate will be levied on annual income above €280,000. The Social Democrats, Klingbeil’s party, call the measure a “super-rich tax.”
“We have also decided to make the tax system fairer,” Klingbeil told reporters in Greenville, South Carolina, after a meeting of G20 finance ministers. “Those with the very highest incomes must make a somewhat greater contribution.”
Taking the offsetting financing measures into account, the government expects a shortfall in tax revenue of €1.55 billion this year. By 2028, that figure is expected to reach €5.6 billion.
The BDI industry association called it a “disappointment in terms of tax policy.”
“There’s no sign of any tangible relief for businesses,” the BDI’s Holger Loesch said.
Marc Tenbieg, head of the Mittelstand association DMB, said higher taxes on top earners would hit many successful small and medium-sized businesses and discourage investment.
The German Chamber of Commerce and Industry (DIHK) also criticised the burden on business.
“It burdens precisely those businesses that invest, train apprentices and create jobs in Germany,” said DIHK chief executive Helena Melnikov. “They will have fewer resources available in future for innovation, investment and new hiring.”
The economy ministry, led by the conservatives, approved the reform but said in a letter to the finance ministry that it was “not far-reaching enough”, highlighting tensions within the ruling coalition.
Klingbeil dismissed the public criticism, saying coalition partners shared responsibility for governing the country.
($1 = 0.8636 euros)
(Reporting by Maria Martinez and Christian Kraemer, Editing by Linda Pasquini and Ros Russell)
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