Tax reform: Cabinet clears income-tax overhaul

Germany’s cabinet has set the income-tax overhaul planned by the governing coalition in motion, despite Finance Minister Lars Klingbeil missing the meeting after a government aircraft malfunction prevented him from returning from the United States in time.

The draft law would provide a total of €10 billion in annual relief from 2028. The government says people with low and medium incomes, along with families with children, should benefit particularly from the changes.

The centerpiece is a higher basic tax allowance, meaning income tax would begin only once earnings reach a higher level. The 42% top tax rate would also apply later, starting at taxable income of €70,600.

The package would also increase child benefit and the commuting allowance, which workers use to claim job-related travel costs for tax purposes. The government plans to help fund the measures by bringing the so-called wealth tax into effect earlier. The reform remains subject to further updates.