Distributional Effects of Measures to Offset Bracket Creeping in 2025

This study analyses the distributional impact of both automatic and discretionary adjustments for bracket creep in 2025. The two-thirds adjustment for inflation results in a relief volume of 1,371 million €, with the top income decile receiving 20.7 percent and the bottom income decile 1.5 percent. Compensation for the remaining third through the discretionary measures considered favours the lower income deciles more significantly, particularly through the new tax credit "Kinderzuschlag," of which 62.9 percent benefits the bottom decile. Considering both the automatic and discretionary adjustments, the average increase in disposable equivalised income is 1.0 percent, with the lower deciles benefiting relatively more. The at-risk-of-poverty rate decreases by 0.3 and 0.6 percentage points, respectively, when using the anchored poverty threshold.