The proposed overhaul of Germany’s inheritance tax system by the Social Democratic Party (SPD) is facing fierce criticism from within the conservative Christian Democratic Union (CDU), raising concerns over its potential impact on the nation’s vital Mittelstand – the small and medium-sized enterprises that form the backbone of the German economy.
Gitta Connemann, chairwoman of the CDU’s Mittelstand and Economic Union, has branded the SPD’s plans as “poison” for the Mittelstand, arguing they risk undermining the sector’s competitiveness and jeopardizing jobs. She highlighted that nearly 99% of Germany’s approximately 3.9 million businesses fall under the category of SMEs and a proposed €5 million tax-free allowance would affect a significant portion of these enterprises when it comes to inheritance.
Connemann’s critique centers on the potential for “substance taxation” a scenario where the value of a business’s assets – land, property, equipment – is taxed, rather than just the profit generated. She argues that in Germany’s current economic climate, already burdened by “the highest taxes” such a measure would be crippling. She pointed out that even seemingly modest businesses, like family-run bakeries or agricultural operations with land and property, can quickly accumulate assets exceeding the proposed €5 million threshold.
The consequence, according to Connemann, would be a forced sell-off of businesses simply to meet tax obligations, directly threatening employment and training opportunities which the Mittelstand provides. “It’s an attack, at its core, on jobs and apprenticeships” she stated.
The SPD’s proposal, intended to modernize the inheritance tax system, includes a “lifetime allowance” of €1 million for individuals, below which inheritances would be tax-free. Critically, the proposal would scrap the current exemption for business assets while introducing a five-million-euro tax-free allowance for business assets. To mitigate liquidity concerns for businesses, the SPD is also suggesting a deferral of tax payments for up to 20 years.
However, Connemann’s strong opposition highlights a growing political divide. While the SPD claims their reforms are designed to facilitate generational transitions in businesses and stimulate economic activity, the CDU’s criticism underscores the anxieties surrounding the potential unintended consequences for the Mittelstand and the broader implications for German competitiveness and the labor market. The debate is likely to escalate as the legislative process unfolds.
