Tax money in the dispute: the federal and state governments struggle for relief!

Tax money in the dispute: the federal and state governments struggle for relief!

Sachsen, Deutschland - The federal government plans a comprehensive tax relief package for companies that meets with broad support from the 16 federal states. However, the federal states are calling for a financial compensation for the expected earnings failures that can arise from the measures. This was from the Ostsee-Zeitung reported.

The Prime Minister Michael Kretschmer (CDU) and Olaf Lies (SPD) emphasized that the reforms are in the common interest, but also face financial challenges. Lies described the package as a "investment booster" and underlined the need to work together on solutions. In order to cope with these challenges, a small country working group is to develop solutions until the next prime minister conference on June 18. The final package could then be voted in the Federal Council on July 11th if an agreement is reached.

scope of tax relief

The planned relief package includes better tax depreciation for companies also a reduction in corporate tax from 2028. These reforms were positively evaluated by experts such as Tobias Hentze from the Cologne Institute of German Economy, in particular the degressive depreciation that create incentives for previous investments. However, Hentze warned that the positive effect could not be permanent. At the moment, the tax burden on corporate profits in Germany is about six percentage points above the OECD average and nine points above the EU average, which underlines the urgency for adjustments, according to SPIEGEL

Manuela Schwesig (SPD), however, pointed out that only a third of the 48 billion euros discharge should be financed by the federal government. The remaining two thirds fall on the countries and municipalities, which triggers concerns in the countries. Kretschmer estimated the financial burden of the package at 20 to 25 billion euros.

financial effects on the countries

The Thuringian Ministry of Finance predicts significant effects of the planned tax relief on state finances. Minister of Finance Katja Wolf (BSW) expects the following lesson in 2026 to 2029:

Wolf also expects negative effects on the municipalities, for which there are still no specific calculations. The city and municipal association of Saxony-Anhalt estimates that the nationwide losses for municipalities will be around 13.5 billion euros in the period from 2025 to 2029. These challenges are particularly acute, since the municipalities only have 15 percent of the tax revenue and have to carry a significant part of the relief, which could bring many in financial difficulties.

Kretschmer and other CDU Minister of Minister have already directed a letter to Chancellor Merz in which they are calling for a rethink in the financial relationships. Despite this support, there are different views within the SPD, whereby read that a written statement is not planned while he wants to support the basic features of the CDU approach.