New wave of tax relief comes into force

The New Year ushered in a tax relief package in Germany worth several billion euros, the first realisation of a campaign pledge made by Chancellor Angela Merkel's new government.

New wave of tax relief comes into force
Photo: DPA

All German income tax brackets changed on January 1, substantially relieving many citizens. The bracket for the top 42 percent rate of income tax was raised from €52,552 to €52,882 a year, while the top tax-free income deduction was raised from €7,834 a year to €8,004 for single people.

The lowest income tax rate of 14 percent now applies to those earning €8,005 and more. On top of this, certain health and care insurance payments can now be set off against tax.

Siblings, nieces and nephews have been relieved of inheritance tax, and sales tax for hotel stays has been reduced from 19 percent to 7 percent. Considerable reforms in business tax have also come into force.

The annual child tax deduction has been raised from €6,024 to €7,008 and the government subsidy for children, Kindergeld, has been increased €20 more per child every month. The state will now pay €184 a month each for the first and second child, €190 a month for the third, and €215 each for any more children.

The annual income limit at which statutory health insurance is mandatory has also been raised from €48,600 to €49,950.

There have also been contribution increases – top-earners must now pay €18 a month more in social security contributions. This is part of a regular yearly increase in the standard bracket by which contributions are determined.

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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.