Germany's €1,000 tax-free bonus plan sparks fierce debate over costs
A new draft law in Germany would allow employers to pay workers a tax-free bonus of up to €1,000 by mid-2027. The measure aims to support citizens struggling with high energy prices and the economic impact of the war in Iran. But the proposal has sparked criticism from federal states over financial concerns. The federal government wants to ease financial pressure on households by reintroducing a tax-free bonus scheme. Similar payments were made during the coronavirus pandemic and the energy crisis linked to the war in Ukraine. This time, the exemption would apply to bonuses paid before June 30, 2027.
However, the plan has faced strong opposition from state leaders. The tax break is estimated to cost up to €2.8 billion in lost revenue, with most of the burden falling on regional governments. Baden-Württemberg’s outgoing Minister-President Winfried Kretschmann accused the federal government of shifting long-term costs onto states and municipalities. Hamburg’s Finance Senator Andreas Dressel went further, demanding that Berlin cover around €700 million in expected municipal expenses. Critics argue that the federal government would benefit from the increased tobacco tax revenue, while states and local authorities would struggle with the financial shortfall.
The proposed tax-free bonus could provide short-term relief for workers facing economic challenges. Yet, without federal compensation, states may have to absorb the majority of the €2.8 billion revenue loss. The dispute highlights ongoing tensions between national and regional governments over funding responsibilities.
