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KEY POINTS: Germany’s inflation relief measures to support people in cost of living crisis

The German Bundestag has passed tax relief and other measures to help people deal with rising inflation amid the cost of living crisis. Here's a look at what you need to know.

Shoppers Stralsund, northern Germany, on November 6th.
Shoppers in Stralsund, northern Germany, on November 6th. Photo: picture alliance/dpa | Stefan Sauer

The Inflation Compensation Act, which was passed with a majority in the Bundestag on Thursday, is aimed at offsetting the effects of high inflation on income tax.

The German parliament has also agreed on the largest increase in child benefit in the history of Germany. 

The changes are set to come into force after the Bundesrat – which represents the states – has given its approval.

Here’s a roundup of the planned relief:

Tax system will be adjusted to high inflation

The inflation compensation act, which was put forward by the coalition government of the Social Democrats, Greens and Free Democrats, provides that taxation will be adjusted to inflation, to help around 48 million people in Germany avoid additional burdens.

The law provides for two relief stages in the coming years. 

The total amount of tax relief will be over €12 billion in 2023, going up to around €18 billion in 2024.

It’s aimed at addressing cold progression, which refers to a situation where a pay rise is ‘eaten up’ by inflation. The result is that people have less money at the end of the day, despite getting paid more.

Finance Minister Christian Lindner, of the pro-business FDP, recently argued that if an income of €43,000 has a purchasing power of only €39,000 in the coming year due to inflation, the state should not levy as many taxes as if it were still €43,000 in buying power.

To compensate for this, the government is turning the screws on the income tax scale.

The basic tax-free amount, i.e. the income up to which no tax has to be paid, is to rise – by €561 to €10,908 next year. Furthermore, the top tax rate of 42 percent will not apply until taxable income reaches €62,827 next year. Currently, it’s charged on incomes above €58,597.

In 2024, this benchmark is set to rise to €66,779. The federal government is deliberately not touching the limit for the even higher wealth tax rate of 45 percent because it does not consider any additional relief necessary in this income bracket.

A person in Germany holds cash. The government has pledged to clamp down on gas prices.

A person in Germany holds cash. The government has pledged to clamp down on gas prices. Photo: picture alliance/dpa | Lino Mirgeler

Rise in child benefit

Families can look forward to extra relief from January 2023. Child benefit (Kindergeld) is to be raised to a uniform €250 per month per child, and €275 per month for their third child.

This translates to an increase of €31 a month for the first and second child and €25 per month for the third child. Child benefit for any additional children will remain unchanged at €250 per month. 

Child allowance (Kinderfreibetrag), which guarantees that the parents’ income remains tax-free up to a certain amount, will also be increased, as will the maximum amount of tax-deductible child support, for example for students.


The increase in child welfare support is intended to ease the burden on families, as they suffer more from the rising cost of living than households without children, the coalition government said.

One-off payment for gas and district heating

A billion-euro emergency aid grant funded by taxpayers for gas and district heating customers in Germany has also been agreed. 

In December, consumers will have their instalment payments waived for a month.

The one-off relief is meant to bridge the gap until the general gas price cap takes effect – at the latest for consumers in March next year.

READ ALSO: How much could households save with Germany’s gas price cap?

A person turning on their radiator in Germany.

A person turning on their radiator in Germany. Photo: picture alliance/dpa | Bernd Weißbrod

Households and small businesses with an annual consumption of up to 1.5 million kilowatt hours will receive the one-off relief payment.

Certain institutions in the care and education sector and in medical care will also receive the emergency aid – even if their consumption is higher.

The amount of relief is calculated on the basis of one-twelfth of the annual consumption forecast by the supplier in September 2022 and the December gas price.

In this way, the prices, some of which have risen significantly at the end of the year, are to be taken into account.

When it comes to district heating, the amount of the September bill and a “flat-rate adjustment factor” are to be used, which takes into account the price increases up to December.

Tenants are to receive the December relief with their next annual heating bill. Landlords have one year to prepare and submit the statement – but must provide notice of the estimated credit this December.

READ ALSO: When will people in December get their gas bill paid?

Sharing of CO2 costs

The Bundestag also passed a regulation for sharing the costs of the climate levy between tenants and landlords.

Up to now, landlords have been able to pass on the CO2 levy on heating oil and natural gas, which has been payable since the beginning of 2021, in full to tenants.

In future, the additional costs are to be divided between tenants and landlords. Authorities say there will be a graduated model which will encourage tenants to to save energy, and will give landlords an incentive to make structural improvements.

Landlords will bear a higher share (up to 95 percent) of the climate levy the more carbon dioxide emissions their building causes, for example because of an old heating system or poor insulation. If a building is in good energy condition, tenants pay the larger share of the CO2 levy (up to 100 percent).

READ ALSO: German liberals delay plans to cut CO2 for tenants

Reform of housing benefit (Wohngeld)

The Bundestag has also passed a far-reaching reform of housing benefit.

As a result, the benefit will be available to more people from next year and will also be higher: instead of the previous figure of around 600,000 households, around two million households will be entitled to Wohngeld.

The average amount is to rise significantly too – from around €180 to about €370 per month.

Housing benefit will also be restructured. There is to be a permanent heating-cost component, which will be included in the allowance calculation as a supplement to rent. A climate component takes into account rent increases due to energy-efficiency measures.

Furthermore, the general formula for calculating housing benefit will be changed.

READ ALSO: Wohngeld – How people in Germany can get help with rising living costs

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How much money could taxpayers in Germany save in 2024?

With changing tax rates and increased child allowance, 2024 could see the tax burden reduced year for taxpayers in Germany - even with some contributions going up.

How much money could taxpayers in Germany save in 2024?

Many taxpayers in Germany will have several hundred more euros to spend in the coming year due to tax changes.

That’s according to calculations by financial scientist Frank Hechtner from the University of Erlangen-Nuremberg who looked at the planned adjustments to taxes and social security contributions coming on January 1st 2024. 

“The change in the income tax rate for 2024 will lead to significant relief,” said Hechtner in an interview with German business newspaper, Handelsblatt.

For example, a single person with an income of €3,000 per month will have a total of €172 more at their disposal in 2024 compared to 2023, despite rising contributions. 

READ ALSO: What you need to know about money and tax changes in 2024

A single person earning €5,000 per month will have €292 more left in their wallet over the year, according to the calculations. 

The savings for a family with two children is significantly higher. If one partner earns €2,500 and the second €4,000 per month, the tax relief will be €508.

A family with two children where both parents earn €4,000 will have €620 left in their household budget next year. 

Top-earning families with an income of €16,000 will have €1,600 more at their disposal.

The relief would be even greater if higher social security contributions were not a burden at the same time.

This is because a “not insignificant part” of the relief is “cancelled out again” by higher social security contributions, says Hechtner.

Child-free taxpayers are particularly affected by higher social security contributions. The additional burden in terms of social security contributions could amount to up to €722 for a single person in the coming year. A high-earning family will have to pay a peak of €541 more in social security contributions in 2024.

READ ALSO: What to know about Germany’s long-term care insurance hikes

Hechtner says one reason for this hike is that the average additional contribution rate in statutory health insurance will rise from 1.6 to 1.7 percent for many people in 2024.

For high earners, the contribution assessment limits in the statutory social insurance schemes will also increase.

However, this will be offset by a series of tax relief measures next year. For instance, the basic tax-free allowance will rise from €10,908 to €11,604 euros. That means that people can earn up this amount without paying any tax. 

Meanwhile, the child tax exemption (Kinderfreibetrag), which guarantees that parents’ income remains tax free up to a certain amount, is set to be increased from €6,024 to €6,384 in 2024.

READ ALSO: What benefits are you entitled to in Germany if you have children?

The federal government is also offsetting so-called cold progression by shifting the tax rates. This term refers to the effect that a wage increase to combat inflation causes someone to slide into a higher tax rate without their real income increasing.

For a more detailed analysis of how much you’ll take home after salary deductions, try filling out the Stiftung-Warentest calculator.