The German Bundestag has advanced a sweeping tax package, intended to provide relief for commuters, the hospitality sector and volunteers, but the legislation has sparked debate and raised questions about fiscal priorities and intergovernmental relations. The “Tax Amendment Act 2025” approved Thursday with support from the governing coalition (Social Democrats, Greens and Free Democrats) and opposition from the Alternative for Germany (AfD) and with the Left party abstaining, represents a complex readjustment of Germany’s financial landscape.
The most significant provision reduces the value-added tax (VAT) on restaurant meals to a permanent rate of 7% starting January 1, 2026. This move, strongly advocated by the hospitality industry, is framed as a measure to stimulate economic activity post-pandemic. However, critics argue it disproportionately benefits businesses while doing little to address broader economic inequalities.
Further adjustments aim to ease the burden on commuters, raising the travel expense allowance to 38 cents per kilometer, primarily benefiting those with lengthy commutes. The proposal also increases allowances for volunteer instructors and unpaid helpers, reflecting an apparent effort to support civil society. A surprise addition includes a provision designating esports as a non-profit activity, a move likely to be viewed as reflecting a growing societal acceptance of the gaming industry, but also inviting scrutiny regarding potential loopholes.
The package incorporates additional concessions, including tax exemptions for Olympic medal prize money and expanded deductions for union membership fees. Perhaps most controversially, the allowable maximum for tax-deductible donations to political parties will be doubled, potentially exacerbating the influence of money in German politics and raising concerns about transparency and fairness.
The passage of the bill hasn’t been without resistance. The Bundesrat, representing the German states, has publicly demanded compensation from the federal government to offset revenue losses incurred by the states and municipalities due to the changes in tax law. This demand, however, was rejected by the federal government, highlighting an ongoing tension between Berlin and the regional authorities regarding fiscal autonomy and responsibility. The rejection fuels concerns that the tax relief measures, lauded by the coalition, could ultimately place an undue financial strain on state and local budgets, leading to future austerity measures that impact vital public services.