Coalition breakdown: The consequences for ongoing tax laws

The end of the traffic light system calls into question important tax laws. What still applies? Or no longer applies?

Frankfurt am Main

November 11, 2024

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Are the ongoing legislative processes still worth the paper they are written on?

Following the FDP's surprise exit from the governing coalition, Germany faces a politically delicate situation: The previous traffic light coalition (SPD, Greens, and FDP) has collapsed, and Chancellor Olaf Scholz now leads a red-green minority government. Scholz plans to put the vote of confidence in the Bundestag in January 2025 (or earlier?). However, due to the lack of a majority, it is highly likely that he will lose the vote. According to Article 68, Paragraph 1 of the Basic Law , the Federal President could dissolve the Bundestag and call new elections in this case.

This has significant implications for ongoing legislative processes. The principle of discontinuity states that, upon dissolution of the Bundestag, all bills not yet passed are considered closed and therefore no longer need to be pursued. While the Bundestag remains capable of acting until such time as it is dissolved, the lack of a majority significantly complicates the implementation of further legislative proposals.

For ongoing legislative procedures, this means the following:

1. Annual Tax Act 2024 and subsistence level

Both laws have already been passed in the Bundestag and now only need to be approved by the Bundesrat. Since the majority there has not changed, approval is likely.

2. Tax Development Act (SteFeG)

The SteFeG could stall due to the coalition breakdown, as it contains some FDP and controversial provisions, such as the reporting requirement for national tax arrangements. This makes an agreement in the Bundestag unlikely, meaning the law could fall victim to the discontinuity principle.

3. Act to Combat Undeclared Employment

Since the law has only just been passed by the Federal Cabinet and is still in the initial stages of the process, implementation before the possible dissolution of the Bundestag is rather unlikely.

4. Future financing, private pension provision and e-fuels

Only drafts exist for these topics, so it is unlikely that the legislative process will begin – especially since these are FDP projects.

5. DAC8 Implementation Act

Unlike the other laws, the DAC8 Implementation Act is based on EU guidelines. Further development at the technical level is expected to ensure rapid implementation after the new elections.

Conclusion

The current political chaos is therefore affecting many tax proposals – until the next federal election, tax policy is on shaky ground.