The German government has finally decided on what is to become a major review in tax relief for the benefit of local economy. The monetary volume of the relief program is deemed to be around six to seven billion Euro.

The program will be introduced in two steps, the first of which is to come in 2013, followed by the second one in 2014. Included is a slight increase of income tax allowances to ease the tax load of low income households. A major shift concerning these also occurs in dampening the so called “cold progression” where a raise in salary could, combined with increasing tax burdens, lead to a lower net income. These two measures alone would contribute to a lowered tax yield of around 4 billion Euro, which is planned to be refinanced half by the federal government and half by the states.

Another slight adjustment will be made in the area of heath care, whose contributions will likely be increased by 0.1% on all income levels, leading to an increase in state income of around 1.1 billion Euro. Also added will be a system where parents who decide not to send their child to a day nursery are given the opportunity to receive a child care subsidy of 100 Euro per month in 2013 which will be raised to €150 in 2014. Currently the levels of health care contributions are at 1.95% for families and 2.2% for persons without children.

Other measures include an increase in health care for persons suffering from dementia, a slight lowering of immigration hurdles for highly qualified foreigners and around 1bil.€ for improvements in transport infrastructure. The opposition meanwhile remains sceptical because of the growing debt of public funds. With the approval of the governing coalition, the new law is likely to be passed promptly.

The circumstances surrounding the new agreement are less then stellar – the governing coalition had been infighting for months before these new measures were approved. Aside from the usual differences between two partners of a coalition, the Bavarian based CSU, usually virtually indistinguishable from the CDU, has been a steady influence on these talks. Bavarian premier Horst Seehofer in particular has been split unusually far from the course set by Merkel’s CDU. The decision ultimately decided upon however has put both parties somewhat at ease again.