Tax Breaks and Parental Leave Spark Fresh Infighting Inside Germany's Governing Coalition

Chancellor Merz's coalition faces internal backlash over proposed parental leave cuts and tax reforms amid soaring social security deficits and a looming 2027 budget crunch.

Germany's ruling parties are at odds over family policy once again, with a proposal to restructure parental leave benefits drawing sharp criticism from both the opposition and within Chancellor Friedrich Merz’s own CDU. The dispute is unfolding against a backdrop of widening deficits in the country’s social security system, which is forcing the government to find billions in savings ahead of the 2027 federal budget.

Family Minister Karin Prien (CDU) outlined plans this week to shorten the current 14-month parental leave period while increasing the monthly payments. The replacement rate would stay at 65 percent of net income, with monthly payouts remaining between €300 and €1,800. The goal is to cut spending on the program by roughly €500 million per year by 2027. A key condition for full eligibility: fathers would have to take more than the usual two partner months under the revised rules.

But the reform has provoked a backlash inside Prien’s own party. CDU executive member Wiebke Winter publicly rejected cuts to parental leave yesterday, insisting that previously agreed increases to the BAföG student grant—from €380 to €440 per month for the housing supplement—must go ahead. She pointed to the billions spent on pension hikes as a better place to trim the budget.

On the other side of the aisle, the SPD faction in Berlin’s state parliament is also pushing back. Lead candidate Stephan Krach warned of the social consequences of reducing support, while faction leader Raed Saleh described the mood less than a year before the September state election as “tense.”

Meanwhile, a separate proposal aimed at reshaping the tax code is adding more fuel to the debate. A group of economists led by Monika Schnitzer wrote an open letter to Chancellor Merz and Vice-Chancellor Lars Klingbeil, calling for a cap on benefits from the joint tax assessment system for married couples, known as Ehegattensplitting. They propose limiting the maximum advantage to €13,805 per year. Any revenue gains should flow directly to families, the economists argue: child benefits (Kindergeld) would rise from €259 to €316 per month, and the tax-free child allowance from €9,756 to €11,902.

The CDU/CSU parliamentary group is already fighting that idea. Family policy spokesperson Anne König and finance expert Fritz Güntzler insisted the previous day that the union wants to keep Ehegattensplitting without any restrictions.

The wrangling over family spending is happening as the Federal Employment Agency warns of a steep financial shortfall. According to calculations released on Tuesday, the agency will need €8.4 billion in federal subsidies this year—more than double the €4 billion originally budgeted. The main driver: unemployment benefit spending jumped 17 percent in the first four months of the year, reaching €10.2 billion. By 2030, the accumulated deficit is expected to hit €23.4 billion. Employer associations are already cautioning that higher contribution rates may be unavoidable if the trend continues.