Dispute over tax plans: Bavaria's minister calls for clarity and relief!

Dispute over tax plans: Bavaria's minister calls for clarity and relief!

The new federal government under Chancellor Friedrich Merz (CDU) has presented ambitious plans to reduce taxes for citizens and companies. These include, among other things, an increase in the commuter allowance and a reduction in VAT in the catering industry. But the reactions from the federal states, especially from Bavaria, are predominantly negative. The federal states fear billions in revenue shortfalls that could result from these measures and have announced great resistance in the Federal Council. This is also shown in a survey by South German newspaper, which documents massive resistance to the federal government's tax plans.

Bavaria's Finance Minister Albert Füracker (CSU), however, supports the plans and emphasizes the urgency of relief for companies and citizens. He describes Germany as a “highest tax country” and appeals to the need to adapt tax policy. Füracker also highlights the agreements made in the coalition agreement and calls on the federal government to quickly submit draft laws. Bavaria will carefully examine all new draft laws, which could result in a possible delay.

Resistance from the federal states

The planned increases in the commuter allowance and the intended reduction in VAT are not only controversial in Bavaria. Saxon Finance Minister Christian Piwarz (CDU) has expressed sharp criticism. He criticizes the fact that the federal government is adopting laws that lead to reduced revenue or increased expenditure for states and municipalities without compensating them accordingly. Berlin Finance Minister Stefan Evers (CDU) expressed similar concerns, pointing to the strained budget situation.

In addition, SPD politician Andreas Dressel describes the increase in the commuter allowance as a “false incentive” and does not see a priority in reducing VAT. In Mecklenburg-Western Pomerania, the state government's approval is made dependent on the federal government's willingness to actually compensate for loss of revenue. The planned sales tax reform in the catering sector envisages a reduction to seven percent from 2026.

Financial implications and prospects

The financial impact of the planned measures is significant. One estimate assumes that the two central measures - increasing the commuter allowance and reducing VAT - will lead to a reduction in revenue of around 23 billion euros over the course of the electoral period, with around 12.5 billion euros attributable to the states and municipalities. These uncertainties regarding the distribution of costs cause additional tensions between the federal and state governments, as the federal government refers to an agreement to the contrary with the prime ministers.

In addition, the current tax estimate makes it clear that tax revenues are lower than expected, which further limits the financial scope for both the federal government and the states and municipalities. The pressure is growing on governments to find concrete solutions that will both relieve the burden on citizens and ensure the financial stability of countries.