The planned bonus of up to 1,000 euros to relieve the burden on employees is in jeopardy. The Federal Council has temporarily stopped the measure to cushion the drastic rise in energy prices due to the Iran war. For the already crisis-ridden federal government, the surprising rejection means another bitter defeat just two days after its one-year anniversary. It is questionable whether the bonus still has a chance. A meeting of the coalition leaders next Tuesday could shed light on this.
The government is fundamentally sticking to the plan to achieve further relief for citizens in view of the increased energy prices, said deputy government spokesman Steffen Meyer in Berlin. “The federal government will decide on the further procedural steps in a timely manner.” There will “certainly be further discussions with the countries” about this.
Meyer left it open whether the federal government would call the federal and state mediation committee to enable renegotiations. He pointed out that the planned income tax reform also offers opportunities for relief. It is scheduled to come into force on January 1, 2027. The discussions about this in the coalition are still at the very beginning.
The bonus was a result of the meeting in Villa Borsig
The black-red government decided on the bonus in mid-April at a very confrontational meeting of the coalition committee in the Villa Borsig in Berlin – as one of two measures alongside a fuel discount of 17 cents, about which Chancellor Friedrich Merz recently said: “It works so well.”
The meeting in the villa is now seen as the low point of the coalition because the actual plan failed to achieve results in the upcoming major reform projects. The draft law passed at the time stipulates that employers can pay their employees the non-taxable premium this year and until June 30, 2027. The reason given is that the Iran war has brought massive economic upheaval and is increasingly becoming a major burden for many citizens in Germany.
Resistance from business and countries from the start
But there was resistance to the measure from the start. The federal government is of the opinion that everyone must contribute to the relief: federal government, states and companies. The economy feels cheated because it does not want to accept additional spending in the middle of the economic crisis. And the states are concerned about the distribution of the costs of the tax relief.
It is said that almost two thirds of the tax losses caused by this would have to be borne by states and municipalities. However, the increase in tobacco tax intended to provide counter-financing falls solely to the federal government, so there is no compensation for states and municipalities. From the perspective of the states, this is another example of how the federal government repeatedly decides on measures that come at the financial expense of states and municipalities.
Another point of criticism: It is completely unclear who will actually receive the bonus. The decision lies with the employer. The federal government itself does not want to make use of this option, for example, in order not to burden public budgets.
Demands for alternative relief
Because of the massive resistance, it seems likely that the bonus will be shelved and a solution will be found through income tax reform. Mecklenburg-Western Pomerania’s Prime Minister Manuela Schwesig (SPD) said: “We would like to talk to the federal government about this: Instead of the relief bonus, what can we bring about to provide relief, a relief that is permanent and that is well received by many?”
Saxony-Anhalt’s Prime Minister Sven Schulze (CDU) made similar comments, calling for new proposals from the government. “We are always ready for talks, for negotiations,” he said. “But one thing must be clear in these discussions: There must also be relief that really reaches people all over Germany.” Schleswig-Holstein’s Prime Minister Daniel Günther (CDU) also called for “other measures” to be discussed now.
The head of the CDU employee wing, Dennis Radtke, brought up an idea for a short-term step. Instead of the bonus, 1,000 euros from special payments such as Christmas bonuses should be made tax-free, he suggested. “That would be a pragmatic way to immediately recognize performance and provide concrete relief for employees with small and medium incomes.”
Another defeat in the middle of the crisis
The defeat comes at the wrong time for the coalition. After the state elections in Baden-Württemberg and Rhineland-Palatinate in March, which were disastrous for the SPD and mixed for the CDU, it became increasingly entangled in disputes. Recently, doubts have been raised as to whether the axis between Merz and Vice Chancellor Lars Klingbeil (SPD) is working well.
Around the anniversary, the Chancellor felt compelled to reject speculation about an early end to the coalition. He ruled out both a minority government of the Union with changing majorities and a new election for the Bundestag. There is no alternative to the black-red coalition, he said at the cabinet meeting on the anniversary.
Dröge sees a “fiasco” for Merz
The Green parliamentary group leader Katharina Dröge sees the coalition’s problem primarily with Merz. “The government’s proposals are so bad that they don’t even convince their own prime ministers in the Federal Council,” she told the German Press Agency. “This is a fiasco for the federal government and, personally, for Chancellor Merz.”
Business welcomed the Federal Council’s decision against it. DIHK President Peter Adrian spoke of a “necessary emergency braking”. The German Social Association, on the other hand, regretted that “an additional way to support employees” would be lost, as association boss Michaela Engelmeier told the newspapers of the Funke media group.