Leading economists are offering divergent perspectives on proposals from the Social Democratic Party (SPD) to increase taxes. Clemens Fuest, President of the Ifo Institute, cautions that such increases could have significant negative consequences for economic growth, while Marcel Fratzscher, President of the German Institute for Economic Research (DIW), argues they are unavoidable.
According to statements made to the “Handelsblatt” newspaper, Fratzscher believes Germany will be unable to meet its challenges without tax increases. He specifically cited the planned increase in defense spending – an additional 3.5 percent of economic output, or approximately 150 billion euros annually – as necessitating higher taxes and a potential reduction in economic prosperity. Fratzscher advocates for increased taxation of substantial assets, including land and real estate and suggests a reform of inheritance tax.
Fuest counters that increasing income taxes for high earners, introducing a net wealth tax, or tightening inheritance tax would further depress private investment and exacerbate existing economic weakness. He points to Germany’s already sluggish economy and a national debt quota projected to exceed 50 percent as reasons to prioritize spending cuts over tax increases.
The debate centers around SPD leader and Finance Minister Lars Klingbeil, who is scheduled to begin drafting the 2027 federal budget in September. The current budget projections reveal a gap of more than 30 billion euros and the governing coalition has yet to agree on a solution.
SPD politicians are maintaining that tax increases should be considered to address the projected shortfall. Sebastian Roloff, the SPD’s economic policy spokesperson, emphasized the need for relief for small and medium-sized incomes and businesses, as well as significant investment in Germany, which cannot be solely funded through special funds. He proposed a higher tax burden for top earners, starting at a monthly income of 20,000 euros.
Ralf Stegner, a member of the Bundestag for the SPD, argued that it is a matter of fairness and solidarity for those with lower and middle incomes to receive relief, while those with the highest incomes, assets and inheritances contribute a larger share.
The SPD has responded calmly to recent statements from CDU leader Friedrich Merz suggesting a tougher approach to social policy. SPD officials believe Merz’s remarks were primarily aimed at energizing party delegates. They noted a shared event between Merz and members of the SPD earlier in the day, in which the coalition’s common ground was highlighted, reaffirming their commitment to address significant domestic and foreign policy tasks. Efforts are underway to improve the coalition’s working pace in the coming months.