Germany's €1,000 tax-free bonus for workers sparks fierce state backlash
The German federal government has proposed a new tax-free bonus for employees, allowing employers to pay up to €1,000 tax-free by mid-2027. The move aims to ease financial pressure from rising energy costs and the ongoing conflict in Iran. However, the plan has faced strong opposition from state leaders.
Under the draft law, workers could receive a tax-exempt payment of €1,000, mirroring similar schemes introduced during the coronavirus pandemic and the Ukraine war energy crisis. The government claims the measure will support households struggling with high living costs.
But federal states have criticised the proposal, warning that lost tax revenue would hit their budgets hardest. Baden-Württemberg’s outgoing Minister-President Winfried Kretschmann (Green Party) accused the federal government of shifting long-term financial burdens onto states and municipalities. The federal estimate suggests the exemption could cost up to €2.8 billion in lost revenue. Hamburg’s Finance Senator Andreas Dressel (SPD) has demanded the federal government cover around €700 million in additional municipal expenses. Critics also point out that a planned tobacco tax hike would only benefit federal coffers, further straining local authorities.
The tax-free bonus proposal now faces resistance from regional leaders concerned about funding gaps. If approved, the measure would provide short-term relief for employees but leave states and municipalities to manage the financial shortfall. The federal government has yet to respond to the demands for compensation.
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