Germany’s cabinet approved a tax relief package on Wednesday valued at approximately €10 billion ($11.6 billion), aimed primarily at increasing disposable income for low- and middle-income households, especially families with children. The measures will be implemented gradually, reaching full effect by 2028, according to the finance ministry.

The coalition government plans to partly finance these cuts by raising taxes on the highest earners, a step that has drawn criticism from business groups. Finance Minister Lars Klingbeil said that, starting in 2028, a typical middle-income family with two children would have over €600 more annually in disposable income.

Among the key changes, the monthly child benefit will increase to €267 per child in 2027, up from the current €259, before rising further to €272 in 2028. The basic tax-free allowance will also be raised to €12,564 in 2027 and then to €12,900 the following year.

The government will maintain the 45 percent top income tax rate for individuals with taxable income exceeding €250,000. A new 47 percent tax rate will be introduced for annual income above €280,000. Klingbeil’s Social Democratic Party described this as a “super-rich tax” designed to promote fairness in the tax system. After attending a G20 finance ministers meeting in Greenville, South Carolina, Klingbeil emphasized that those with the highest incomes should contribute more to public finances.

Despite the relief measures, the government anticipates a revenue shortfall of €1.55 billion in 2026, increasing to €5.6 billion by 2028 when the full package is in place.

Business representatives expressed strong opposition to the tax increases on top earners, warning about potential negative effects on investment and economic growth. The Federation of German Industries (BDI) described the tax policy as disappointing, citing a lack of tangible relief for businesses.

Marc Tenbieg, head of the Mittelstand association DMB, argued that higher taxes on wealthy individuals could impact many successful small and medium-sized enterprises and deter investment. Similarly, Helena Melnikov, chief executive of the German Chamber of Commerce and Industry (DIHK), contended that the measures would reduce resources available for innovation, investment, and job creation.

Within the coalition government, tensions surfaced as the Economy Ministry, led by the conservative bloc, approved the reform but criticized it as insufficiently ambitious in a letter to the Finance Ministry. Klingbeil downplayed the differences, underscoring that all coalition partners share responsibility for governing.