Germany tax reform debate 2026

In July 2026 the German coalition government released a growth and employment program that kept the Minijob system intact while raising the employer’s flat tax contribution from 2 % to 5 %. The change affected roughly eight million low‑wage workers in sectors such as retail, gastronomy and agriculture, and was supported by the FDP as a measure to protect jobs.

A few weeks later, in early August 2026, Ifo Institute president Clemens Fuest called for a sweeping overhaul of the value‑added tax system. He proposed abolishing the reduced 7 % rate and applying a uniform 19 % rate to all goods and services, paired with an annual €360 credit for households earning below €55 000. While the reform was presented as a simplification that could raise over €36 billion annually, analysts warned that even with the credit, low‑income families might see a net loss in disposable income. The proposal sparked public debate over price impacts, purchasing power and social equity, adding a new dimension to the ongoing discussion of Germany’s tax policy.