From January 2023, Germany will see a slight increase in child benefits and tax adjustments designed to counteract cold progression. Child benefits will rise by 5 euros, while the child tax allowance sees a 60-euro increment. Additionally, the basic tax-free allowance and tax rates are adjusted to mitigate the effects of cold progression.
These changes aim to invigorate consumer spending and spur economic growth. However, they come at a cost. States and municipalities will face a revenue shortfall, with total tax losses expected to exceed 13.5 billion euros for the federal, state, and local governments.
The immediate child supplement is also set to rise by 5 euros. Yet, these benefits are partially offset by increased social security contributions, which dilute the relief for many households. Couples with children are the primary beneficiaries, while single parents and individuals might find the relief inadequate.
The relief package, a priority for Chancellor Scholz following the traffic light coalition's collapse, will not be fully tangible until March, when adjustments will reflect in paychecks. Meanwhile, the Bundesrat's approval paves the way for these changes, though the reforms have prompted calls for further economic stimulation strategies, including a proposed reform of the debt brake.
While these measures are a step forward, they highlight the complex challenge of balancing immediate financial relief with long-term fiscal responsibility. Only households with children can expect significant benefits, underscoring the need for continued support for families.
