Finance Minister Christian Lindner (FDP) is meeting with his plans to reduce the so-called cold tax progression, some with significant resistance from the SPD and the Greens.

Chancellor Olaf Scholz (SPD) regards the proposal with “fundamental goodwill”, as a government spokesman said on Wednesday.

But completely different voices come from the parliamentary groups.

This time they fundamentally reject the adjustment of the income tax rate to inflation, which was previously practiced on a regular basis.

Dietrich Creutzburg

Business correspondent in Berlin.

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"Billion-dollar tax cuts, from which top earners benefit three times as much as people on low incomes, ignore reality," said Andreas Audretsch, Vice President of the Greens.

And for the influential parliamentary left in the SPD parliamentary group, their spokeswoman Wiebke Esdar pointed out that they saw "no leeway" for Lindner's plans.

A relief for small to medium-sized incomes is more important, she told the FAZ. This can be "financed through additional income such as a wealth tax or an excess profit tax or by suspending the debt brake."

Tax cut, right?

However, the question of whether the reduction in cold progression is a tax cut is politically controversial: it is about protecting households with falling real incomes from rising taxes.

If, for example, wage increases move below the inflation rate, then the purchasing power of the employees decreases.

However, since their income increases nominally, the tax authorities would use higher tax rates if the adjustment is not made.

In anticipation of such criticism, Lindner himself suggested not adjusting the income threshold to the so-called wealthy tax rate of 45 percent this time.

In addition, at the official presentation of his draft law on Wednesday, he pointed out that the traffic light coalition was not only preparing a major reform of the housing benefit, but also the introduction of the new citizen benefit instead of the basic security system Hartz IV. Both, like the adjusted tax rate, should come into force on January 1st.

More support for low earners

The redesign of these two social benefits aims to provide more support for low and middle earners.

Housing benefit is given to employed persons whose income from work is not sufficient for a suitable apartment (including heating and ancillary costs).

And with the new citizens' allowance, Social Affairs Minister Hubertus Heil (SPD) wants to make it easier for the unemployed to find employment that secures their livelihood.

In addition, as of January 1, the monthly cash benefits will also be adjusted for them - in any case to the wage and price development;

if it goes to Heil, SPD and Greens, then even well beyond that.

Hartz IV recipients are protected from acute increases in heating costs anyway, since these (like their rent) are paid by the job center.

Above all, Lindner emphasized that, in addition to his tax package, there should be additional improvements for lower to middle incomes anyway.

But this also points to the tactical situation in the traffic light coalition: All three projects have to go through the legislative process almost in step in order to come into force on January 1st.

If the SPD and the Greens risk blocking the tax law, the FDP could put the brakes on housing and citizen benefits.

Politically, Lindner and the FDP have two trump cards up their sleeves.

A statement from his government spokesman indicated that Scholz has this in mind: The tax plans should be seen as part of a larger overall concept.

For the Confederation of German Trade Unions (DGB), which also represents many industrial employees with incomes well above the top tax rate of around 60,000 euros a year, Lindner's proposal falls far short of the mark.

His board member Stefan Körzell confirmed the DGB's demand not only to increase the basic income tax allowance to 10,932 euros per year (from the current 10,347 euros), but always to exempt the first 12,800 euros from the tax.

According to internal calculations by the Ministry of Finance, however, this would reduce tax revenue by 20 billion euros a year, twice as much as Lindner's draft law for 2023.

In contrast, the employers' association BDA clearly supported the plans.

"The key thing is that the employees have more money in the end," said their general manager Steffen Kampeter.

This will also "help to counteract the obvious wage-price spiral" and secure jobs.

"Yellow made the serve - now the entire traffic light has to score," he said.