As of: April 3, 2024, 11:55 a.m
By: Amy Walker
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Finance Minister Christian Lindner (FDP) is planning major tax relief that will give millions of people more money. You can find out here how much more net remains than gross.
Berlin - After the standard rate for citizens' money rose by twelve percent at the beginning of this year, Finance Minister Christian Lindner (FDP) also wants to relieve the burden on the working population. Specifically, he plans to increase the basic allowance by 180 euros, retroactively from January 1, 2024. This means that all employees generally have more net than gross.
But Lindner would like to go further and reduce the so-called “cold progression”. This is intended to prevent employee salary increases from being completely eaten up by inflation. The SPD and the Greens, however, don't think much of this plan because it also relieves the burden on top earners.
Increasing the tax allowance: So much more net remains from the gross
The basic tax allowance is to increase from the current 11,604 euros to 11,784 euros. In 2023 the allowance was still 10,908 euros. The allowance determines the annual income from which taxes are deducted. So anyone who earns less than the tax-free allowance pays no taxes. And anyone who earns more than this does not pay any taxes up to this amount, so the tax allowance is first deducted from the total income before the tax rate is then applied to the rest. To put it very simply: Anyone who earns 12,000 euros a year will only have to pay taxes on the remaining 1,092 euros in 2023.
According to calculations by the
Bild
newspaper, which relies on the taxpayers' association, this results in the following relief (in the year):
Singles / single parents: +34 euros
Married couple without children: +68 euros
Married couple with 1 child, 8000 euros gross per month: +138 euros
Married couple with 2 children, 8500 euros gross: +206 euros
Married couple with 3 children, 9000 euros gross: +268 euros
However, the greatest relief is for low-income earners, who are no longer liable to pay taxes once the tax-free amount is increased. In many cases, those who have received a salary increase no longer have to worry that it will disappear into nothingness due to tax payments.
Reduce cold progression: Table shows the possible relief
Christian Lindner's second plan, the dismantling of cold progression, would, however, benefit many more people - and also those who are among the higher earners. “It’s not just low-income earners who deserve fairness,” the finance minister explains his initiative in
Bild
. “The performance of specialists and managers as well as medium-sized companies must also be recognized.”
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Christian Lindner wants to break down the cold progression again. © Michael Kappeler/dpa
Cold progression is the effect of high inflation on income tax, which would ultimately lead to a secret tax increase. Lindner wants to reduce this creeping tax increase by adjusting the income tax rates. It would therefore be adjusted as to which tax rate applies to which income. In Germany we have a progressive tax rate that starts at 14 percent and goes up to 45 percent for top earners. By adjusting the tax rates, someone who would actually move up from the 14 percent tax rate to 16 percent through a salary increase would remain at the old tax rate. This means that person gets more out of their raise.
According to the
Bild
newspaper and the Taxpayers' Association, dismantling the cold progression would mean a single with 3,000 euros gross per month would have 110 euros more per year. A household with four people and 8,000 euros gross per month would even have an extra 304 euros per year.
monthly salary |
Relief in the year single |
Relief per year Married couple with 2 children |
|---|---|---|
3000 euros |
110 euros |
116 euros |
4000 euros |
141 euros |
178 euros |
4500 euros |
160 euros |
188 euros |
5000 Euro |
181 euros |
200 euros |
6000 euros |
236 euros |
244 euros |
The plan is causing trouble for the coalition partners because it makes no distinction between high earners, top earners and people with lower incomes.
The SPD and the Greens want to relieve the burden on low earners
Representatives of the SPD and the Greens made it clear that they primarily want to relieve the burden on small and medium incomes. It makes sense to compensate for the cold progression, said the financial policy spokesman for the SPD parliamentary group, Michael Schrodi, to the newspapers of the
Funke
media group. “At the same time, it cannot be the case that this disproportionately reduces the burden on top earners.”
Green party deputy Andreas Audretsch emphasized: “Tax cuts for the richest in the country are not a priority.” The budget is “priorities cast in numbers,” Audretsch told the Funke newspapers. The priority for the Greens is the single mother who works and doesn't have enough at the end of the month, as well as the police officer who depends on good child benefit and well-equipped daycare centers for his family.
The federal government most recently responded to high inflation for the years 2023 and 2024. Further compensation must be discussed in the context of the budget draft and financial planning, Lindner announced. Financial details will only be known in the fall, when a new progress report is available.
With material from dpa