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Tax cuts and pensions: How Germany's budget changes could impact you

Following the approval of the federal budget for 2025, which came at the end of June , leaders of the government met this week to try and agree on some critical budget adjustments. Namely, they wanted to agree on where money might be saved to pay for a formerly promised electricity tax cut for German households. After a lengthy debate, members of the black-red coalition - comprised of the conservative Christian Union parties (CDU/CSU) and the Social Democrats (SPD) - emerged with bad news for German residents: The electricity tax cuts for families and small businesses will not go forward in the foreseeable future. But the meeting did result in an agreement to bring forward changes to the Mothers' pension ( Mütterrente ) by one year. Here's what to know about the changes made to the government's budget plans this week. EXPLAINED: What Germany's new 2025 budget means for you About those electricity tax cuts... The decision not to reduce electricity taxes for everyone in Germany means that households will continue to pay some of the highest electricity prices in Europe. Ahead of the coalition meeting German media had called the effort to save the electricity tax cuts "the first real acid test" for the black-red government. Now that the coalition has failed to bring the tax cut forward, just about everyone - from coalition partners to business associations to the opposition - is upset about it. In their coalition agreement, the government said they would "reduce the electricity tax for everyone..." However, they also said that doing so would depend on financing. The cost of the tax cuts was expected to be €5.4 billion in 2026. In their talks, the parties were unable to agree on where that much financing could be found. READ ALSO: German government scraps electricity tax cuts for households Defending the cabinet's decision, German Chancellor Friedrich Merz said, 'We can only spend the money we have.' But the announcement has not been taken well by stakeholders and voters who feel duped. The chairwoman of the Social Association of Germany (SoVD), Michaela Engelmeier spoke of a 'fatal signal' for citizens. 'In times of high living costs, they need tangible relief,' she told the German Press Agency. Advertisement The President of the German Confederation of Skilled Crafts (ZDH), Jörg Dittrich, accused the coalition of breaking trust: 'The electricity tax cut for all set out repeatedly and bindingly in writing..." Black-red coalition leaders suggest that other energy cost relief measures will result in potential savings up to three cents per kWh for consumers. That's less than the five cents suggested in the coalition agreement but still worth up to €100 a year for a family of four, according to government estimates. However, the German Chamber of Industry and Commerce calculates that a maximum of 15 percent of businesses will benefit from the changes. It's also worth noting that the coalition's plan to stick to the elimination of a levy on gas while scrapping tax cuts for electricity has been criticised as a step in wrong direction in Germany's climate policy, because it effectively incentivises gas use and disincentivises electrification at a time when heatwaves are becoming more common and more severe. READ ALSO: School closures to rail chaos - What happens when Germany is hit by extreme heat Mothers' Pension brought forward The coalition committee did agree to bring forward the introduction of the extended Mothers' Pension to the start of 2027 – one year earlier than planned. The changes will see Mütterrente , which compensates parents who take time away from paid employment to raise children, adjusted for parents whose children were born before 1992. Currently, eligible parents of children born before 1992 receive up to 2.5 years worth of Mütterrente payments, whereas parents of children born in 1992 or later, receive three years. The reform extends the three years of payments to all parents. Despite the announcement, Germany's pension insurance fund has said that implementation would likely not be possible until early 2028, due to extensive individual entitlement checks. Committee members insist the mothers' pension will be paid retroactively if technical implementation is not possible until later than January 1st 2027. Advertisement Other pension changes to come The committee confirmed that the second part of the pension package is to be adopted in autumn of this year. Those changes are set to include an active pension, an early start pension and the Act to Strengthen Company Pensions. READ ALSO: Q&A - What we know about Germany's plan to give kids pensions Pension payments are set to increase by 3.74 percent from January 1st, 2026, a move designed to keep pensions broadly in line with inflation and wage developments.