The federal and state governments agree: financial relief for municipalities!

The federal and state governments agree: financial relief for municipalities!

The federal and state governments have agreed on a comprehensive modernization of the infrastructure in Germany, which also provides tax relief for companies. This was decided on June 24, 2025 during a meeting of 16 Prime Ministers and Chancellor Friedrich Merz (CDU) in Berlin. Further details on a package of measures intended to create incentives for investments will be announced later today. The planned tax depreciation options are particularly important for machines and electric vehicles.

Corporate income tax is to be reduced from 2028, which is intended to be a step towards easing the burden on companies. The Bundestag will decide on this tax package next Thursday. However, there are conditions for approval in the Federal Council: The states are demanding financial compensation that is intended to support highly indebted municipalities in particular. According to estimates, the total tax losses amount to around 48 billion euros, with 13.5 billion euros attributable to the municipalities, 16.6 billion euros to the states and 18.3 billion euros to the federal government.

Details about the compensation measures

In the coming days, a working group will clarify the modalities of the desired compensation for the states and municipalities. While the exact details are still uncertain, Merz emphasizes the priority given to municipalities. Planning for the investment program is considered critical as it could potentially result in loss of revenue.

Prime Minister Manuela Schwesig (SPD) from Mecklenburg-Western Pomerania has already indicated that partial compensation for the tax losses for the municipalities is being considered. Saxony's Prime Minister Michael Kretschmer (CDU) also emphasized the initiative as an important interim step towards stabilizing public finances. However, it remains essential to clarify the amount of relief for the states and municipalities before the Bundestag decision in order to avoid disagreement in the mediation committee.

Outlook for next week

After the Bundestag vote on Thursday, the law will be forwarded to the Bundesrat, which will have the final say until July 11, 2025. A possible solution could be increasing the states' share of sales tax and targeted support for municipalities as part of climate change programs. Experts express mixed opinions on the current economic situation, underlining the urgency of the recommended measures.

In summary, it can be said that the federal government not only wants to relieve the burden on companies with the planned tax package of 46 billion euros between 2025 and 2029, but is also aiming for a viable solution to local and state political challenges. This could pave the way for a sustainable economic recovery. Information on this topic can be found at Deutschlandfunk and ZDF Today.