The proposed inheritance tax reform by the Social Democratic Party (SPD) is facing fierce criticism from within the Christian Democratic Union (CDU), with concerns escalating over potential damage to Germany’s vital Mittelstand – its small and medium-sized enterprises. Gitta Connemann, Chair of the Mittelstand and Economic Union, condemned the plan as “poison” for the sector, highlighting the disproportionate impact it would likely have on a vast majority of these businesses.
Connemann argued that with nearly 99% of Germany’s approximately 3.9 million businesses classified as small and medium-sized, a proposed €5 million exemption threshold risks ensnaring a significant portion when considering inheritance matters. She emphasized that this would effectively constitute a ‘substance tax’ – essentially taxing the assets that form the core of these businesses – a burden Germany’s struggling Mittelstand can ill afford, especially given its already compromised price competitiveness due to the nation’s high tax rates.
The CDU politician drew attention to the specific vulnerability of many Mittelstand businesses, citing examples like agricultural operations with land holdings or independent bakers owning property and bakeries. The combined value of these assets can swiftly surpass the proposed €5 million threshold, forcing business owners to potentially liquidate portions of their assets to cover the associated tax liabilities.
“This is fundamentally an attack on jobs and training opportunities” Connemann stated, underscoring the potential for widespread job losses and hindered apprenticeship programs should the reform proceed. While acknowledging the continuing importance of the Mittelstand to the German economy, she warned that this policy could severely undermine its stability.
The SPD’s proposal aims to introduce a “lifetime allowance” of €1 million for tax-free inheritance, alongside the elimination of existing exemptions for business inheritance, with a €5 million exemption for business assets. Recognizing potential liquidity challenges for businesses, the SPD also proposes allowing tax payments to be deferred over up to 20 years. However, the CDU’s criticism centers on the core principle of the reform and its potentially detrimental effects, raising questions about the government’s commitment to supporting the backbone of the German economy. The debate highlights a growing rift between the governing parties regarding fiscal policy and the future of Germany’s Mittelstand.