Increased Taxes Implemented in the South of the Country
The current German coalition government, led by the Christian Social Union (CSU) and the Social Democratic Party (SPD), has prioritised tax relief measures as a means to stimulate investment and economic growth, rather than increasing taxes. This shift in focus was evident in the comprehensive tax package approved by both houses of parliament and signed into law in July 2025.
The tax package includes a reduction of corporate income tax from 15% to 10% by 2032, investment incentives, degressive depreciation for movable assets, and increased tax allowances. These measures, aimed at boosting economic growth, have been a cornerstone of the government's economic strategy.
However, the question of financing long-term pension, health, and nursing care insurance remains a topic of debate. While the SPD, under the leadership of Federal Minister of Labour and SPD chairwoman Barbara Bas, has considered tax increases as a possibility for long-term financing, the coalition has ruled out such measures for this legislative period.
Bavarian Minister-President Markus Söder, a prominent figure in the CSU, has rejected SPD demands for tax increases during the current legislative period. Söder, who has been vocal about the need for economic growth, argues that it is not credible to propose tax increases while planning to accumulate debt of up to 500 billion euros.
Söder has also proposed changes in the citizen's income policy, particularly for Ukrainians living in Germany. He believes that Ukrainians should no longer receive citizen's income, arguing that this change is necessary to ensure that everyone who can work does so. This demand, Söder says, is to update what is economically necessary and improve the state's performance, generating more tax revenue.
Bas, on the other hand, has suggested that reforms and higher state subsidies are necessary to prevent rising contributions. She considers tax increases a possibility for long-term financing of pensions, health, and nursing care insurance.
As the coalition government navigates these differing viewpoints, the 2026 federal budget emphasises safeguarding jobs, supporting social services, and maintaining pension and healthcare stability without explicitly raising taxes for these purposes. However, the budget also indicates that extensive austerity measures may be forthcoming to manage the rising deficit caused partly by the tax relief measures and increased military spending, potentially impacting social sectors indirectly.
In summary, the German coalition government's focus remains on tax reductions and investment incentives, combined with tight fiscal consolidation and anti-fraud measures, to secure necessary funding. While the question of tax increases for long-term financing of social insurances remains a topic of debate, the current decisions and budget plans do not call for such measures as of 2025.
- The German coalition government's policy-and-legislation has prioritized reducing taxes as a means to stimulate economic growth, with the 2026 federal budget veering away from tax increases for long-term financing of social insurances.
- Despite the need for financing long-term pension, health, and nursing care insurance, the current tax policy largely consists of service sector incentives, such as reduced corporate income tax, investment incentives, and increased tax allowances, with politics shying away from tax increases for the 2025 legislative period.
