German coalition meets on income-tax reform with Klingbeil demanding higher top-earner taxes and Spahn pitching a 5 percent subsidy cut
Germany's CDU/CSU–SPD coalition committee met in the Kanzleramt on Tuesday to plot an income-tax reform and replacement relief measures, with SPD chair and Vice-Chancellor Lars Klingbeil insisting top earners must pay more and CDU/CSU parliamentary leader Jens Spahn pitching a flat 5 percent cut to the country's €77.8 billion subsidy budget instead. Klingbeil also signalled an inheritance-tax overhaul, arguing the roughly €13 billion the state collects on €300–400 billion inherited yearly is too little. The session followed a Bundesrat veto from twelve of sixteen Länder — including every Union-led state — that killed the coalition's €1,000 worker relief premium, and lands amid the lowest chancellor approval ratings on record for Friedrich Merz.
Vice-Chancellor and Finance Minister Lars Klingbeil framed Tuesday's coalition committee in the Kanzleramt as primarily an "Arbeitssitzung" — a working session aimed at a roadmap for reform rather than headline decisions. Union officials echoed the lowered bar, saying the meeting was about planning and exchange of views, with major resolutions not expected. The agenda nonetheless covered the two issues splitting the partners: the planned income-tax reform and replacements for the relief measures designed to absorb the economic shock of the Iran war.
Klingbeil restated the SPD's red line on the tax overhaul on Monday at the DGB Bundeskongress: "For me it is completely clear, there can be no income-tax reform in which top earners in this country do not also pay more. That is the direction we will push in." He paired the move with an inheritance-tax push, arguing that with €300–400 billion inherited annually but only €13 billion collected, "no one can claim the country would go under" from a moderate increase. Relief, he said, should focus on workers earning roughly €2,500–€4,000 a month.
Union parliamentary group leader Jens Spahn rejected that approach in the Rheinische Post late last week: "We can't simply burden 5 percent more to relieve 95 percent. That would push rates above 60 percent." His counter-proposal is a flat 5 percent cut across subsidies and tax breaks. Total federal subsidies for 2026 are budgeted at €77.8 billion under the September 2025 subsidy report. Klingbeil told reporters he is "open" to the idea but the coalition would need to "very concretely agree" what such cuts mean in practice, including programmes already under firm grant commitments. SPD economic-policy spokesman Sebastian Roloff told Phönix the principle is right but the "watering-can principle" is a bad guide, and climate-damaging subsidies should be hit first.
The coalition friction extends beyond tax. Labour Minister Bärbel Bas, SPD co-chair, told the DGB congress that "the differences between the Union and us have rarely been as palpable as today", that "reform doesn't mean cuts" and that she wants Germany's social safety net "not smaller, but smarter". She also distanced herself from the coalition-agreement plan to move off the mandatory eight-hour workday. Merz used his own DGB appearance to argue Germany faces its highest reform pressure in decades; he was met with boos and whistles, even when describing the three pillars of the pension system.
Bavarian Premier Markus Söder summed up the mood as "objectively and subjectively mixed" and called for "mental cleanup work". Spahn pointed at coalition self-presentation as the prime cause of "miserable mood and even worse polling": Merz now holds the weakest chancellor approval ratings on record, lower than Olaf Scholz at the end of the Ampel.
The meeting also had to address the wreckage of the April coalition committee at Villa Borsig, which produced a rushed €1,000 relief premium and a 17-cent fuel-tax cut. Merz says the fuel cut works "so leidlich" — passably — and the €1,000 premium was killed in the Bundesrat by twelve of sixteen Länder, including every Union-led state, after being announced without prior coordination with states and employers. Instruments now on the table to fill the gap include a Stromsteuer cut for all consumers, a higher Pendlerpauschale, a raised Arbeitnehmerpauschbetrag, and making payments such as Weihnachtsgeld tax-free.
Tuesday's session lands inside a worsening political run for Merz. On May 6 he ruled out a minority government or new elections at the coalition's one-year anniversary, committing to the full three-year term. On May 7 the partners were already publicly at odds over automatic Bundestag pay rises while the European Commission cleared a separate €5 billion package of German climate subsidies. By May 8 polling showed 86 percent of Germans dissatisfied with the government, and the Iran war's energy effects had halved expected growth — the same pressures now driving the search for replacement relief measures.