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Wages, rent and pensions: What will the new German government mean for your wallet?

As Germany enters a new era, we looked at what the new government's plans could mean for how much you pay and save in future.

A person places money in a piggy bank.
A person places money in a piggy bank. Photo: picture alliance/dpa/dpa-Zentralbild | Patrick Pleul

The new coalition government made up of the Social Democrats, Greens and the Free Democrats (FDP) have set out an agreement with the aim of modernising Germany. 

Here’s the financial impact their plans could have on households and consumers in the coming months and years. 

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Low income earners to get more 

There’s good news for people who earn the minimum wage (Mindestlohn): it will jump from the current €9.60 to €12 per hour. This is likely to happen in the coming months. 

Furthermore, the earnings limit for mini-jobs will rise from €450 to €520, and for midi-jobs to €1,600 (from the current €1,300).

A mini-job is a position in Germany where the employee earns no more than a certain amount each month, allowing people to work fewer hours free of tax. A midijobbber, which also belongs to the category of low-income earners, receives a reduced tax burden.

Taxes, ‘spouse’ splitting, savings

The traffic light parties haven’t agreed on a fundamental tax reform. But there are some changes.

Ehegattensplitting, which refers to how married couples’ income taxes are calculated under the German law, with tax classes 3 and 5 is to be abolished in future.

This regulation, which has been in place since the 1950s, is said to have pushed many women into low-income jobs.

Moreover, the lower earner (mostly women) pays more tax than the partner with the higher income. Instead of ‘spouse splitting’, a so-called real splitting is to be introduced.

In future, married couples will be assessed individually on their income tax returns.

The coalition agreement states: “We want to further develop family taxation in such a way that partnership responsibility and economic independence are strengthened with regard to all forms of families.”

READ ALSO: Ehegattensplitting: How did Germany’s marriage tax law get so controversial?

Meanwhile, savers can expect relief. The savers’ allowance is to be raised from €801 to €1,000 for singles and from €1,602 to €2000 for couples – but not until 2023.

This would be the first increase in the allowance since 2007. Plus, the education allowance is to rise from €924 to €1,200. The ‘home office’ allowance, introduced in the pandemic due to so many people working from home, will be extended until the end of 2022.

A married couple exchange rings.
A married couple exchange rings. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

Tax boosts

The new German government plans to put in place some tax relief, with the aim of benefitting single parents, families with children and people caring for relatives in particular. 

The coalition also wants to reform land transfer tax. 

Renting

The coalition partners do not plan a rent freeze which would see rents fall down and massive relief for tenants. 

The parties instead say they will extend the rent brake until 2029. That means that tenants can challenge their landlords to lower the rent prices, but it can often involve lengthy court cases so has been criticised. 

Landlords will soon only be allowed to hike up rents in tight housing markets (like Berlin or Munich) by a maximum of 11 percent in three years. Currently, the cap is 20 percent in general and 15 percent in districts with a tight market.

The coalition has set themselves the goal of building 400,000 new flats per year in Germany, with 100,000 of them publicly subsidised. They say this will ease the rental crisis.

Energy prices

The recent sharp rise in energy prices has put a heavy burden on many people across Germany. This is one of the reasons why the CO2 price will no longer be paid for by tenants alone. From June 2022, landlords will have to contribute, either in the form of a graduated model according to building energy classes or by paying half the amount.

The new government partners also want to provide relief on electricity prices by abolishing the EEG levy. After the agreed reduction in January 2022 (from 6.5 cents to around 3.7 cents per kilowatt hour), the EEG levy will no longer be paid for by households in their electricity bills from 2023 and will be paid out of the federal government budget.

But since the CO2 price on fossil fuels will continue to rise, experts expect energy to become more expensive, which will hit most consumers despite all the planned relief. The new government wants to set up a new fund to help hard-up families.

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Food costs

Rising energy prices could also make food more expensive in the coming years, as we’ve already seen in Germany.

The coalition parties plan to launch a so-called “nutrition strategy” by 2023, with the aim of ensuring that the share of regional and organic products grows, food waste is reduced and plant-based meat alternatives are promoted.

Meanwhile, cheap food is to be put under closer scrutiny. The coalition agreement states: “We will take action against unfair trade practices and examine whether the sale of food below production costs can be prevented.” Particularly cheap meat, as currently offered by discounters, could become more expensive in future.

Unemployment support will change

The new coalition wants to replace income support (known as Hartz IV), with a so-called citizen’s income – or Bürgergeld.

At the moment we still don’t have many details about this, though the main change will likely be that people won’t be immediately assessed on the size of their living space or savings when they apply for financial assistance. Other than that, parties haven’t said when it will happen, how the new system will work, or how much money people will get – though it’s unlikely to be much of a payrise for the unemployed.

Pensions

As Germans live longer while also having less children – and the babyboomers retire – the demographic makeup of society is changing dramatically. While the proportion of working age people to retirees is currently three to one, it is expected to increase to three to two by the year 2060.

So what does the country do about pensions?

The coalition has vowed to maintain state pensions at 48 percent of average salaries, with contributions capped at 20 percent of gross pay. This will not rise in the coming legislative period. According to the coalition agreement, there will be no pension cuts or a higher retirement age.

In a bid to keep these promises in the long term, the coalition wants to supplement pension system by a private provision based on shares. The agreement states that “this partial capital cover is to be professionally managed as a permanent fund by an independent body under public law and invested globally”.  Many details are, however, still unclear at this stage.

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TRAVEL NEWS

German states threaten to block €9 ticket in Bundesrat

Germany's cut-price transport ticket is supposed to go on sale next Monday - but a battle over financing is threatening to torpedo the government's plans.

German states threaten to block €9 ticket in Bundesrat

An feud between the federal and state governments intensified on Monday as state leaders threatened to block the government’s most recent energy package when it is put to a vote in the Bundesrat on Friday. 

The battle relates to the government’s plans for a budget transport ticket that would allow people to travel on local and regional transport around Germany for just €9 per month.

Though the 16 states have agreed to support the ticket, transport ministers are arguing that the low-cost option will blow a hole in their budgets and lead to potential price hikes once autumn rolls around.

They claim that current funding promised by the Federal Transport Ministry doesn’t go far enough.

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“If the federal government believes it can be applauded on the backs of the states for a three-month consolation prize and that others should foot the bill, then it has made a huge mistake,” Bavaria’s Transport Minister Christian Bernreiter (CSU) told Bild on Monday.

The government has pledged €2.5 billion to the states to pay for the measure, as well as financial support for income lost during the Covid crisis. 

Transport Minister Volker Wissing. of the Free Democrats (FDP), said states would also receive the revenue of the €9 ticket from customers who take advantage of the offer. 

“For this ‘9 for 90 ticket’, the €2.5 billion is a complete assumption of the costs by the federal government,” said Wissing on Thursday. “In addition, the states are also allowed to keep the €9 from the ticket price, so they are very well funded here.”

Transport Minister Volker Wissing

Transport Minister Volker Wissing (FDP) speaks ahead of a G7 summit in Düsseldorf.

However, federal states want a further €1.5 billion in order to increase staff, deal with extra fuel costs and to plan for the expansion of local transport in Germany.

Mecklenburg-Western Pomerania’s Minister for Economic Affairs, Reinhard Meyer (SPD), told Bild that there would be “no approval (on Friday) as long as the federal government does not provide additional funds.”

Baden-Württemberg’s Transport Minister Winfried Hermann (Greens) also warned that “the entire package of fuel rebate and €9 euro ticket could fail in the Bundesrat” if the government doesn’t agree to the state’s demands on funding.

The Bundesrat is Germany’s upper house of parliament, which is comprised of MPs serving in the state governments. Unlike in the Bundestag, where the traffic-light coalition of the Social Democrats (SPD), Greens and Free Democrats (FDP) has a majority, the CDU is the largest party in the Bundesrat. 

What is the €9 ticket?

The €9 monthly ticket was announced early this year as part of a package of energy relief measures for struggling households.

With the price of fuel rising dramatically amid supply bottlenecks and the war in Ukraine, the traffic-light coalition is hoping to encourage people to switch to public transport over summer instead. 

The ticket will run for three months from the start of June to the end of August, and will allow people to travel nationwide on local and regional transport. Long-distance trains like IC, EC and ICE trains will not be covered by the ticket. 

It should be available to purchase from May 23rd, primarily via ticket offices and the DB app and website. 

Some regional operators, including Berlin-Brandenburg’s VBB, have also pledged to offer the ticket at ticket machines.

READ ALSO: EXPLAINED: How to get hold of the €9 travel ticket in Berlin

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