Health and Care Cost Surge Could Undermine Germany’s Planned Tax Relief, Minister Warns

Labour minister warns rising health costs risk undermining tax overhaul as unions propose higher thresholds and a wealth tax to close €30 billion revenue gap.

Germany’s labour minister and SPD co-chair Bärbel Bas has issued a stark warning: rising costs in health and long-term care risk eroding public confidence in the income-tax overhaul her government is designing. Speaking in a Sunday debate format, Bas insisted that any reform must deliver at least €500 in annual relief for taxpayers. “Anything less would lack credibility,” she said, while cautioning that voters would quickly sour on the package if other expenses keep climbing.

The reform is scheduled to take effect on 1 January 2027. But the fine print is already sparking fierce haggling within the coalition and between parties.

Where the Top Rate Should Kick In – And How High It Should Go

CDU general secretary Carsten Linnemann wants the 42% top marginal rate to apply only once annual income exceeds €80,000. That position draws support from the IG BCE industrial union, whose chief Michael Vassiliadis actually proposed a €100,000 threshold – but in exchange he would lift the rate itself by two to three percentage points.

The DGB trade-union federation released its own counter-proposal on Sunday. Under its plan, 95% of employees would see a lower tax bill. The key numbers: the basic personal allowance rises to €15,400, a 49% top rate applies from €88,800, and a 52% rate would hit incomes above €140,000.

A €30 Billion Hole – And Länder Push Back

The projected revenue loss from any substantial tax cut hovers around €30 billion. To close that gap, DIW president Marcel Fratzscher has revived the idea of a wealth tax – abolished in Germany decades ago. He proposes a 2% levy on net assets exceeding €20 million, which he estimates would raise roughly €42 billion annually. The DGB goes further, calling for the tax to start at €1 million in assets.

The Cologne-based Institute of the German Economy (IW) warns that such a levy could damage Germany’s investment climate. Political resistance is also building among the states. Bundesrat president Andreas Bovenschulte urged the coalition to finalise the tax reform before the summer parliamentary break, stressing that the Länder would defend themselves against any financial disadvantage. Berlin’s governing mayor Kai Wegner demanded that the federal government compensate states if new tasks are transferred to them or their revenues are trimmed.

Chancellor Stays Upbeat, Commission Work Continues

Federal chancellor Friedrich Merz sounded confident at a party conference on Saturday, arguing that the coalition has the unity needed to push through social reforms. A high-level meeting at the chancellery is scheduled for Wednesday, bringing together social partners and business associations.

Alongside the tax debate, work on pension reform is proceeding. Bas said the relevant commission’s findings must be delivered by 29 June. Bovenschulte counselled caution and proposed postponing the pension issue to the second half of the year.

Separately, the labour ministry is tying any relaxation of the eight-hour workday rule to strict conditions: electronic time recording, collective-bargaining coverage, and compatibility with family and professional life. Any flexibility, the ministry insists, cannot be imposed against employees’ wishes.