Finance Minister Olaf Scholz proposed tax relief for low and middle income earners from 2019 onwards in view of the considerable increase in tax revenues which was announced on Wednesday afternoon.
The federal government will have additional revenue of €10.8 billion until 2022 “which we can think about using”, the Social Democrat (SPD) politician said as he presented the new tax estimate.
Overall, federal, state and local governments can expect to generate €63.3 billion more in tax revenues by 2022 than forecast in the last estimate in the autumn.
Scholz emphasized that not all the money would go into tax relief, as some of it would go towards a fund to accelerate the digitization of schools.
At the same time, he reaffirmed the government’s commitment to not taking on any new debt, saying that Germany needed to proceed with caution in the face of current international tensions.
“We're optimistic, but we can't be too careful,” he said, adding that the government wants to continue to pursue a financial policy that is “solid, socially just and future-oriented”.
The Finance Minister was not forthcoming with details on what tax relief would look like, but implied that his goal would be to reduce the so-called cold progression.
The process, also known as “bracket creep” and often described as a “secret tax hike”, occurs when taxes rise faster than income in real terms, as tax rate thresholds do not take into account inflation.
Scholz also said that “to a certain extent” there would be room for manoeuvre on budgets at the defence and development departments.
When Scholz unveiled his budget plans at the start of the month, he drew sharp criticism from Merkel's conservative ministers for defence and development, who were disappointed that their ministries only received small increases in their budgets.