The German Federal Ministry for Economic Affairs, currently under the leadership of CDU’s Katherina Reiche, is reportedly exploring further tax relief measures for businesses, sparking debate over the government’s priorities and potential impact on social welfare programs. A draft of the upcoming annual economic report, leaked to Handelsblatt, reveals plans for legislation in 2026 aimed at “structurally improving the taxation of companies.
A key element of this proposed legislation centers on revising the “opting model” allowing partnerships to elect to be taxed as corporations, paying corporate tax instead of income tax. Proponents argue this will enhance competitiveness and encourage investment. However, critics contend that this further tilts the tax burden away from corporations and towards individual taxpayers, potentially exacerbating income inequality. The move is likely to face resistance from coalition partners, given its potential to be perceived as favouring large businesses at the expense of smaller enterprises and individual earners.
Simultaneously, the draft report also introduces the potentially controversial proposal of merging Bürgergeld (basic income), housing allowances and child benefits into a single, streamlined system. The Ministry claims this consolidation could reduce disincentives to work, with studies suggesting a possible increase in working hours equivalent to 149,000 full-time positions, alongside savings of up to €4.5 billion for public coffers. While presented as a measure to enhance efficiency and incentivize workforce participation, the proposal has already drawn criticism from labour advocates who fear it could lead to reduced support for vulnerable populations and increased bureaucratic complexity.
Internal ministry documents, also obtained by Handelsblatt, reveal that the proposals are not yet finalized and are subject to intensive negotiations, particularly with ministries led by the Social Democratic Party (SPD). The documents detail “substantial adaptation requests” emanating from the SPD, indicating significant disagreement on the proposed policies and highlighting potential friction within the governing coalition. The final version of the annual economic report, slated for release at the end of January, will be crucial in determining the direction of these contentious economic reforms and exposing the fault lines within the German government. The willingness of the Ministry to address the “substantial adaptation requests” will likely be a key indicator of the political viability of these proposals.