Clemens Fuest, the president of the Ifo Institute, dismissed SPD Finance Minister Lars Klingbeil’s proposal to cut taxes for middle‑and‑lower‑income households as essentially unaffordable. He explained that simply flattening what he calls the “middle‑class tax wedge” would cost the state more than €30 billion per year. Fuest argued that tax burdens are ultimately a consequence of public spending, so any meaningful tax relief must start with a reduction in expenditures. He noted that the governing coalition has, so far, shown no willingness to seriously limit spending.
Fuest also expressed skepticism about the SPD’s suggestion to raise the top tax rate as a counter‑financing measure. “Germany’s economic situation is already tight, with insufficient investment-do we want to make that even worse?” he questioned. He warned that higher taxes on top earners could indirectly hurt middle‑class incomes. Regarding the CDU’s proposal, led by General Secretary Linnemann, to apply the top rate only on incomes above €80 000, Fuest called the impact “hard to gauge” and dismissed it as “coffee‑grindery” speculation, arguing that the cost would vary widely depending on how the progressive tax scale is designed.
Looking ahead to the projected budget deficit of around €130 billion between 2027 and 2029, Fuest foresees a mix of spending caps, tax tightening, and further borrowing. He fears that the government will continue diverting funds from earmarked accounts, potentially increasing the controversial “misappropriation” of special‑purpose funds because of mounting fiscal pressure.
In the medium term, Fuest considers a VAT hike virtually unavoidable. “We cannot rule out that the government will ultimately raise the VAT” he said. He added that a VAT increase is “less growth‑hostile” than an income‑tax rise because it has a smaller negative impact on investment. Yet he insisted that if the state desires more growth and tax relief, it must also implement spending cuts.
Finally, Fuest cast doubt on the government’s hope that stronger economic growth will ease the fiscal situation. “We have no evidence of a boom beyond what is already priced in, and I see nothing moving in that direction”.