More than 600 euros in relief per year sounds like good news at first. For a family with two children, this can indeed mean an additional buffer in the household budget from 2028 onward. But this very figure is also a good reason why the 2027 tax reform appears much larger than it actually is. Converted, it is only 50 euros per month, and the full effect will not arrive for another two years. That is not a good report card for a state that is expected to collect almost one trillion euros in taxes in 2026.
The federal government speaks of a radical reform course: 34 measures, less bureaucracy, more net income, a stronger economy and a more stable welfare state are being promised. Yet in the actual tax bill, this looks very different for many people: higher allowances, a little more child benefit, a slightly flatter progression, but also a higher burden on very high incomes, a reduced craftsmen’s bonus and a higher flat-rate tax on mini-jobs.
We had already warned about precisely this pattern in March 2025 after the first plans of the newly installed government. New debt, special funds and political promises do not simply disappear; at most, they can be pushed into the future and shifted onto others. Later, they always fall back on everyone again – sometimes as an open tax increase, as a reduced benefit or simply as relief that looks larger in the headline than it does in the bank account.
What the 2027 tax reform is actually supposed to achieve
According to SPD Federal Finance Minister Lars Klingbeil, the income tax reform is scheduled to start on January 1, 2027 and be fully implemented from 2028 onward. The relief volume is around 10 billion euros per year. The focus is on low and middle incomes, especially families with children.
However, the package only adjusts familiar levers: the basic allowance, child allowance, child benefit, employee lump-sum allowance and the tax rate structure. In addition, the top tax rate is to apply later. The second progression zone is to become flatter, meaning the range in which additional income is taxed progressively more heavily.
For many employees, that is better than nothing. Anyone who has to budget every month for rent, food, energy, mobility and insurance will not simply dismiss a few hundred euros per year. Families in particular feel such amounts the most. Nevertheless, the political presentation remains larger than the actual effect. A great deal is being made to look better on paper, and the government is celebrating itself.
With expected tax revenue of 998.7 billion euros in 2026, 10 billion euros corresponds almost exactly to 1% of total revenue. For the German tax and contribution system, the relief package is therefore extraordinarily small. Germany thus remains a country in which a good gross income creates surprisingly little free capacity to save.
Higher basic allowance: right, but not generous
The basic allowance is to rise in two stages to 12,900 euros by 2028. In reality, this is merely a vehicle for not taxing the subsistence minimum. At the same time, the child allowance and child benefit are to rise. Those at the lower end of income tax in particular will therefore be taxed later or less heavily. Anyone with children benefits additionally. After years of sharply rising prices, this makes sense because many households have not gained prosperity, but are merely trying to preserve their old purchasing power.
Even so, a higher basic allowance is by no means a generous gift. When prices rise, rents climb and wages follow in nominal terms, the state must regularly adjust the tax-free range in order to continue guaranteeing that the subsistence minimum remains tax-free. Otherwise, it taxes deeper into incomes that, in real terms, have brought citizens no gain in prosperity in their wallets. This is the familiar fiscal drag. The employee receives more gross income because life has become more expensive. For tax purposes, they look richer on paper, even though their purchasing power has barely increased. When the state later raises allowances, it partly gives back what inflation and the tax-rate logic had previously taken out of the wage increase.
A real reform would permanently and automatically limit this effect. The 2027 tax reform does not do that; it remains a political adjustment that is positively sold as relief.
More child benefit: help in everyday life, not a major turning point
Child benefit is expected to rise to 272 euros by 2028. For families with two children, the Federal Ministry of Finance cites example calculations of more than 600 euros in relief per year. A care worker and a bus driver each earning 2,800 euros gross per month and having two children are therefore to be relieved by around 632 euros per year from 2028 onward. For a nursery teacher and an electrician each earning 3,200 euros gross, the figure is only insignificantly higher at around 642 euros. Families carry high ongoing costs, and many of them have little room for reserves despite decent work. Anyone raising two children feels every price jump in food, clothing, childcare, energy or mobility particularly strongly.
Nevertheless, this figure should not be sold more positively than it actually is. 632 euros per year is a good 52 euros per month, but in many families it barely covers more than part of a larger weekly grocery shop or helps them later to close their own pension gap. Nor does home ownership suddenly become attainableas a result. Such a contribution does not ensure that work can automatically turn into ownership, which would be necessary to truly relieve society as a whole later on. Many families get a little breathing room, but remain in a system that heavily burdens income, continues to raise social security contributions and makes private provision ever more complicated. You remain dependent.
Employee lump-sum allowance and tax-rate shift: the middle gets some breathing room
The reform package from the CDU/CSU and SPD also provides for the employee lump-sum allowance to be raised, probably by 200 euros, to 1,430 euros. It reduces taxable income for work-related expenses without individual costs having to be listed or proven. In addition, the top tax rate is to apply later in future, at around 70,600 euros in taxable income. For comparison: it currently applies from 69,879 euros – another very hesitant move by the federal government. Nevertheless, this is the part of the reform that is most likely to relieve the working middle and cannot be seen only as a political obligation.
Many people do not earn badly, but do not feel wealthy. On paper there is a solid income, while after deductions and all living costs there is often far too little left in the account compared with what the gross figure would suggest. If tax progression becomes flatter, pressure is automatically taken out of the taxpayer boiler and it is at least partly prevented that additional income is taxed more heavily too quickly. For people who want to build wealth from work, every euro counts in the end.
Germany does not only have an income tax problem; it has a contribution and levy problem. Wage tax, social security contributions, employer costs, consumption taxes, energy levies and indirect burdens all interact. A small shift in the tax rate structure does nothing to make building wealth easier. The state finances itself from ongoing private value creation. If this base is burdened ever more heavily, a small relief in the tax schedule is not enough to restore trust or bring about genuine long-term improvement.
Tax on the rich: politically convenient, structurally thin
To help finance this little reform, the tax on the rich is to be adjusted. The rate of 45% is to apply in future from 250,000 euros in taxable income. From 280,000 euros, a new rate of 47% is also to apply. Politically, this too is very easy to sell well, because the vast majority is not affected. After all, those who earn very much should be able to carry more – at least that is the tenor among the wider population. Even so, this point also shows how limited the reform’s thinking is. The relief is not financed by a leaner state, not by hard prioritization of spending and not by a simpler tax system. It is secured in part through a higher burden elsewhere.
That can work in the short term, but in the long term it remains the same political tactic: groups are offset against one another, while the structure remains the same and unimproved. Today it hits very high incomes, tomorrow perhaps capital income and real estate, and the day after tomorrow inheritances or other forms of wealth. If the state permanently needs more money, it looks for new access points. Taxes often serve only to plug its own budget holes and have long since ceased to be earmarked.
Less craftsmen’s bonus: relief with a reverse side
But that is not all: the tax deductibility of craftsmen’s services is also to fall from 20% to 15%. The maximum tax benefit thus drops from up to 1,200 euros to a maximum of 900 euros per year. Compared with income tax and the tax on the rich, this seems almost meaningless. In reality, however, it is likely to have a decisive impact on many households. Anyone who has heating serviced or replaced (because they have to), renovates a bathroom, commissions a repair or has work carried out in their own home has so far been able to claim part of the labor costs incurred for this through craftsmen’s services for tax purposes. That will still work in future, but with a much lower amount, and thus raises the tax burden a little again year-on-year.
This also makes clear that the state provides relief in one place but cuts an existing benefit in another. It does not simply return a lower tax burden; it merely rearranges the burden, and for that reason too the planned tax reform cannot be called one. This is not real relief.
Higher flat-rate tax on mini-jobs: small side income becomes more expensive
The planned change to mini-jobs is particularly perfidious, because mini-jobbers are also to become part of the counter-financing. Until now, mini-jobs have been taxed by the employer at a flat rate of 2%, while the employee had no contributions to bear. This flat-rate tax is to rise to 5% in future and thus directly affects the employer, who can then either offer fewer mini-jobs or pass on the cost in their prices, which in the end further fuels the wage-price spiral.
Meanwhile, mini-jobs are mostly found in small businesses or private households that already calculate tightly: in hospitality, retail, household help, associations, delivery services and many side jobs. For some, the mini-job is additional income alongside studies, retirement or family. For others, it makes a valuable contribution to an already tight household budget.
If this type of employment becomes more expensive for tax purposes, that does not fit at all with the federal government’s grand relief narrative. The state is not only taking more at the top; it is also reaching into small forms of employment, and thus into those who would actually need relief the most. Anyone who wants to make work more attractive and present themselves as a genuine welfare state must not send such signals.
Digital tax return: better process, same burden
With MeinElster+, the federal government wants to simplify tax administration. An automatically pre-filled digital tax return, faster tax numbers for companies and better use of data are intended to speed up processes. Many citizens and entrepreneurs lose a great deal of time with forms, documentation and slow administration. If the state already has much of the necessary data anyway, it should not request it again every year. Less bureaucracy would be real progress, especially for the self-employed, small businesses and ordinary employees.
However, digital administration must not be confused with tax relief, because a simpler and faster tax return does not automatically reduce the tax burden.
Please be honest!
Sure, the 2027 tax reform is not worthless. It brings families, employees and parts of the middle more net income from gross income and thus perhaps the necessary buffer to cope better financially in everyday life. It shifts tax brackets, raises allowances and acknowledges that the burden from prices and contributions has become too high.
What is really large, however, is only the political presentation. The reform adjusts levers that should in political terms actually be fixed anyway, and it does not tackle the real problems at their core at all. On the one hand, relief is provided and the state is made leaner; elsewhere, however, this benefit is taken back from citizens again. Instead of solving problems, the burdens are simply rearranged.
The state is more likely to need more money in the coming years than less: pensions, long-term care, health care, defense, interest, infrastructure and new political promises will certainly not become cheaper. That is why the old warning remains current: After the debt orgy comes the tax orgy at another point in time. Sometimes with a big name, sometimes in the fine print.
The tax reform is being sold excellently in political terms, but it is only a small correction in an expensive system.
