Germany's upper house rejects relief bonus for employees

A tax-free bonus of up to €1,000 ($1,180) that German companies could give their employees partly to offset high energy costs will not be introduced for the moment after the bill suffered a legislative setback.

In a surprise move on Friday the upper house of parliament, or Bundesrat, did not approve the bill that had already been passed by the lower house. 

The draft bill provides for employers to be able to pay their employees a tax-free "relief bonus" of up to €1,000 until June 30, 2027.

The draft states that the war in Iran has caused massive economic disruption and is becoming an increasing burden for many citizens in Germany. The federal government is primarily concerned with high energy prices.

The Bundesrat, which is made up of representatives from Germany's federal states, is concerned mainly about the cost of the bonus and its distribution.

Almost two-thirds of the resulting tax shortfalls would have to be borne by the states and local authorities. However, the increase in tobacco tax that is intended to offset the costs would accrue solely to the federal government, meaning there would be no compensation for the states and local authorities.

The states say that the federal government, as a matter of principle, should cover the costs it imposes on them and the local authorities through its decisions.