Germany’s new coalition government, formed by the conservative alliance led by Friedrich Merz and the centre-left Social Democrats (SPD), announced a set of tax measures on 9 April 2025 as part of their policy agreement.
The measures include a phased reduction in the corporate tax rate, beginning in 2028, with the rate decreasing by one percentage point each year over five years. Between 2025 and 2027, companies investing in equipment will receive a 30% depreciation allowance (declining balance depreciation).
From 2026, the value-added tax on food served in restaurants will be reduced from 19% to 7%.
The government also plans to exempt overtime pay from income tax and people who continue to work beyond their retirement age will be able to earn up to EUR 2,000 tax exempt monthly income.
Electricity prices will drop by at least 5 cents through lower tax and grid fees. The parties also agreed to incentivize up to 20 GW of gas power plants by 2030 and to pass legislation for carbon capture and storage for gas-fired plants.
The government will also set up a commission with members from the Bundestag and the federal states to prepare a proposal for updating the debt brake, which currently limits public borrowing to 0.35% of GDP.
