Germany's governing coalition is facing renewed friction over how to balance tax relief, social spending and a strained budget. The Chancellery has pushed back against Finance Minister Lars Klingbeil's proposed sugar levy, while a separate dispute over income-tax reform could depend on legislation from Labor Minister Bärbel Bas.

Sugar levy faces resistance

Klingbeil's draft proposes tiered charges on sugary drinks that would bring in just over 795 million euros a year, according to the proposal reported by ARD. A government-appointed commission had recommended a levy expected to raise about 450 million euros annually from 2028. The Chancellery objected to the larger burden on food producers and consumers, and the draft is to be revised. The government agrees in principle on introducing a sugar tax, but its design remains disputed.

Care reform compromise, wider questions remain

The coalition reached an agreement in cabinet on September 30 after the Social Democrats said they would not accept the draft prepared by Christian Democratic Union lawmaker Carsten Linnemann. The SPD opposed cuts to benefits and wanted to cap care recipients' out-of-pocket costs at 1,500 euros. The agreed draft was scaled back, and the nursing-care funds are to be stabilized in the short term. A broader overhaul has been put off until next year, with an expert commission expected to prepare proposals.

The budget leaves little room for agreement. Germany's public-sector deficit reached 98.8 billion euros in the first half of 2026, including 72.3 billion euros for the federal government, according to the Federal Statistical Office. The government also faces pressure to ease household costs: in the latest ARD-DeutschlandTrend, 10% said they were satisfied with the government's work and 10% with the chancellor's performance. More than three-quarters said they were feeling increasing financial strain.

Tax reform becomes another point of contention

The Union has criticized Klingbeil's income-tax relief plans as insufficient, while the SPD has said it is open to greater relief if the financing is settled. Union finance lawmakers have proposed funding more generous cuts through reductions in federal spending. Handelsblatt reported that a proposal from the Union parliamentary leadership would withhold support for the tax reform until Bas submits draft legislation on pension and labor-market changes. The first reading of the tax reform is due in the Bundestag next week.

Der Spiegel reported that President Frank-Walter Steinmeier called Interior Minister Alexander Dobrindt and Klingbeil on September 29, apparently out of concern about the coalition's future. Details of the conversations have not been made public, and the extent of any influence they had is unclear. The federal budget for 2027 is scheduled for a Bundestag vote on November 27.