The federal government’s planned tax reform is set to be rolled out in two distinct phases, according to a draft report from the Federal Ministry of Finance, as cited by the newspaper “Bild.”
The implementation timeline suggests that in 2027, a reduction in income tax revenue is projected to amount to around three billion euros. This figure will increase in 2028, reaching a total shortfall of 6.99 billion euros. Officials from the Ministry of Finance stated that overall, the tax relief provided in 2028 would amount to roughly ten billion euros when compared to 2026.
Given the two-stage rollout, the total relief needs to be considered in parts: approximately three billion euros in 2027, and an additional seven billion euros added in 2028.
The draft proposes several changes taking effect on January 1, 2027, including raising the basic tax-free allowance by 216 euros and increasing the child allowance by 300 euros. Furthermore, the child benefit is set to rise by eight euros per child per month. Simultaneously, two higher tax tiers, dubbed the “wealth tax,” are introduced: 45 percent will apply to gross incomes starting at 250,000 euros, while a second rate of 47 percent will apply to incomes beginning at 280,000 euros.
For 2028, further adjustments are planned, including another increase in the basic tax-free allowance of 336 euros and an additional five euros increase in the child benefit.
These figures follow prior coalition discussions, which had suggested that simply eliminating “cold progression” would necessitate a relief package of seven to eight billion euros in 2027. More recently, Chancellor Friedrich Merz (CDU) and Federal Finance Minister Lars Klingbeil had announced a commitment to providing a total annual relief of about 10 billion euros starting in 2028.
