German Cabinet Approves €10 Billion Income Tax Reform
nashnova research
Germany's cabinet approved a €10 billion income-tax overhaul that cuts the burden on middle- and lower-income families while pushing the top rate to 47% — a two-phase "tax the top, relieve the middle" reset set to take full effect in 2028.
How does the money reach ordinary families?
Child benefits rise in two steps: from €259/month now to €267 in 2027, then €272 in 2028.
The basic tax-free allowance climbs to €12,564 in 2027 and €12,900 in 2028. This means → the slice of income that is never taxed gets larger — low earners benefit most.
In plain terms = the allowance is a floor; everything below it is tax-free. Raise the floor, and the taxable portion shrinks.
The Finance Ministry estimates a two-child, middle-income household will keep over €600 more per year from 2028.
Where does the money come from — who pays more?
The existing 45% top rate now kicks in at €250,000 of taxable income, down from a higher threshold — pulling more high earners into the top bracket.
A brand-new 47% rate applies to income above €280,000 — a tier that did not exist before in Germany's tax code.
Finance Minister Lars Klingbeil was explicit: "The highest earners must contribute more." This reflects a deliberate choice to pair relief with revenue, not to cut taxes one-sidedly.
Can it actually land — what to watch next?
The plan has cleared the cabinet but still requires approval by both chambers of parliament.
The two-phase design (partial effect in 2027, full rollout in 2028) creates room for political negotiation. This means → if parliamentary horse-trading drags on, the 2028 timeline could slip.
In plain terms = cabinet approval is only the first gate. The real fight is in parliament — especially the tax-hike provisions, where lobbying pressure from high earners will be intense.
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