Federal and state governments: Municipalities receive full relief from tax losses!

Federal and state governments: Municipalities receive full relief from tax losses!

The federal and state governments have reached a groundbreaking agreement that provides for complete relief for municipalities from loss of income as part of the new investment program. Lower Saxony's Prime Minister Olaf Lies (SPD) announced this on Second German Television today. The details of the measures will be presented later today, with particular attention being paid to the adjusted tax regulations for companies.

A key element of this program is a comprehensive tax relief package aimed at incentivizing companies to invest. These include, among other things, expanded options for depreciating machines and electric vehicles. There are also plans to reduce corporate tax from 2028, which will have an impact on the tax burden on companies.

Details about compensation and tax losses

At the same time, the agreement comes into the larger context of compensation measures that the federal government is planning for states and municipalities due to tax losses. Overall, the estimated tax losses amount to 48 billion euros, of which 13.5 billion euros are for the municipalities. These key points were set at a meeting of 16 Prime Ministers and Chancellor Friedrich Merz (CDU) in Berlin. Merz emphasized the priority of this compensation, especially for highly indebted municipalities.

The exact modalities of compensation are currently unclear. A working group will work on the details in the coming days. It remains to be seen whether these tax losses will be fully or only partially offset. Prime Minister Manuela Schwesig (SPD) from Mecklenburg-Western Pomerania indicated that partial compensation for the municipalities is conceivable, while Saxony's Prime Minister Michael Kretschmer (CDU) spoke of an “important interim step”.

Bundestag decision and financial consequences

The Bundestag will vote on the measures on Thursday. Clarifying the level of relief for states and municipalities will also be crucial in order to avoid delays and disagreements in the mediation committee. After the Bundestag vote, the law still has to pass the Bundesrat, which will have the final say on July 11, 2025. Expert opinions on the effects on the German economy are divided, with possible solutions such as a higher share of the federal states in sales tax or targeted support for municipalities in the area of ​​climate change programs being discussed.

In summary, it can be said that the approved relief for municipalities and the planned tax relief for companies are both a reaction to the current financial challenges and intended to promote future investments in Germany.