Germany's SPD pushes bold inheritance tax reforms amid economic slowdown
Germany's debate over inheritance tax has grown sharper in recent years. Rising revenues, constitutional concerns, and criticism of loopholes for wealthy families have pushed the issue into the spotlight. The Social Democrats (SPD) are now proposing major reforms, even as economic growth forecasts shrink to just 0.6% this year.
The party insists that higher taxes on the rich, including stricter inheritance rules, remain essential for fairness and fiscal stability. The SPD's latest proposals target Germany's inheritance tax system, which currently brings in €12 billion annually. Critics argue that generous exemptions—such as no tax on estates over €26 million—favour large business transfers and worsen wealth inequality. A pending 2026 ruling by the Federal Constitutional Court (Az. 1 BvR 804/22) adds pressure, as it examines whether business assets receive unfair preferential treatment.
SPD experts suggest a €900,000 to €1 million lifetime allowance for close family members, with business assets exempt up to €5 million. They also propose progressive rates starting at 1%, rising to 12–27% for the largest inheritances. Payment deferrals of up to 20 years aim to ease liquidity concerns for medium-sized firms. These changes could generate between €2.3 billion and €147 billion in extra revenue, depending on implementation. The German Institute for Economic Research (DIW) supports similar ideas, including scrapping business privileges and simplifying tariff structures.
Beyond inheritance tax, the SPD rejects any rise in value-added tax, warning it would hurt low-income households and weaken domestic demand. Instead, they advocate for alternatives like reintroducing a wealth tax or reforming capital gains rules. Wiebke Esdar, deputy leader of the SPD parliamentary group, has called the current system unjust, arguing it undermines broader economic strength. The party also plans income tax reforms to relieve 95% of employees while asking higher earners to contribute more.
The push for tax reform comes as economic research institutes cut Germany's 2024 growth forecast to 0.6%, partly due to tensions linked to the Iran conflict. Despite this downturn, the SPD insists fiscal consolidation must focus on taxing wealth rather than cutting spending or raising consumption taxes. The SPD's plans would overhaul inheritance tax by closing loopholes and introducing progressive rates. If approved, the reforms could significantly boost state revenues while addressing long-standing criticisms of unfair advantages for the wealthy.
At the same time, the party's refusal to raise value-added tax signals a focus on protecting lower-income groups. With economic growth slowing, the proposals set up a clash over how to balance fiscal responsibility with social equity.
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