In the aftermath of the recent federal elections, coalition negotiations between the Union parties and the SPD have now reached a pivotal phase. After extensive discussions among 256 experts divided into 16 working groups, the leaders of the four political parties are set to tackle the unresolved contentious issues.

Starting today, a team of 19 negotiators, led by party heads Friedrich Merz (CDU), Markus Söder (CSU), Lars Klingbeil (SPD), and Saskia Esken (SPD), will focus on resolving significant disagreements. The aim is to conclude negotiations by Easter, which is just three weeks away, allowing for the new cabinet to be sworn in by early May. However, many issues still remain unresolved, including military service, the future of combustion engine vehicles, and pension reforms, which could pose significant challenges.

Main Points of Contention Taxation

The working group on budget and taxation has highlighted a number of contentious issues for the negotiators to address. A key topic is the timing of the corporate tax reform agreed upon during preliminary discussions, intended to make Germany a more competitive economic location. The Union proposes to lower the corporate tax starting in 2026, while the SPD is advocating for improved depreciation methods and a more gradual approach to tax adjustments, suggesting minimal changes until 2029.

In terms of income tax, indications suggest that the top tax rate may only apply to higher income brackets. The SPD aims to raise this rate from 42% to 47%, also seeking to increase taxes on capital gains and reintroduce a wealth tax, which the Union staunchly opposes. There are also stark differences regarding inheritance tax, with the Union proposing to increase exemptions for family members, while the SPD wants to review exemptions for business inheritances to ensure that heirs pay more taxes.

Migration Policy

Another major point of disagreement is the policy regarding the rejection of asylum seekers at Germany's borders. A preliminary compromise allowed for the possibility of such rejections "in coordination with our European neighbors," but opinions diverge on whether this means simply informing neighboring countries or requiring their consent. The working group has not clarified whether the new government will agree to the Union's demand to process asylum applications outside of the EU. The Union's representatives are also pushing for stricter citizenship laws, suggesting that individuals who support terrorism, anti-Semitism, or advocate for the dismantling of the democratic order could have their German citizenship revoked if they hold another nationality.

Pension Reforms

While both parties have agreed to secure the pension level during negotiations, there is no consensus on the specific rate. The SPD wishes to maintain the current level at 48%, which would likely necessitate higher contribution rates. The Union counters with a proposal to extend the required working years for this pension level from 45 to 47. Additionally, the CSU's push for an expansion of the so-called 'mother's pension' remains contentious, with the SPD insisting that the associated costs of approximately five billion euros annually should be covered by tax revenue, a stance the Union has yet to support.

Future of Combustion Engine Vehicles

Disagreements also surface within the economic working group regarding the future of combustion engine vehicles. Following the EU's decision to phase out new diesel and petrol cars by 2035, the Union has expressed its refusal to accept this ban. In contrast, the SPD supports the EU's goal of permitting only zero-emission vehicles from 2035 onwards.

In their preliminary discussions, both parties indicated a commitment to promoting electric mobility through purchase incentives, although the specifics remain unclear. There is also a divide over the proposed introduction of a general speed limit on highways, with the SPD advocating for a cap of 130 km/h, which the Union opposes.

Military Service

The Union is advocating for the reinstatement of mandatory military service, which was suspended in 2011, citing personnel shortages in the Bundeswehr. Conversely, the SPD maintains that military service should remain voluntary and calls for a broad societal discussion on the introduction of a new form of service.

Financial Burdens on Local Governments

On the issue of financial support for heavily indebted local municipalities, the SPD continues to push for the federal government to assume half of their existing debts. While the CDU may be amenable to this, the CSU is opposing it, likely due to the comparatively better financial standing of Bavarian municipalities. The CSU is instead advocating for a reform of the state financial equalization system to lessen the burden on donor states like Bavaria, which the SPD believes is functioning adequately as is.