Germany's coalition unveils extensive reform package

Germany’s governing coalition of the CDU/CSU and SPD, led by Chancellor Friedrich Merz, has presented a 34‑point reform package aimed at reviving the economy. The plan combines €10 billion of tax relief for low‑ and middle‑income households – a family earning €60,000 will receive about €600 a year – with a higher top‑income tax rate, raising the rate to 45 % for earnings above €250,000 and to 47 % for incomes above €280,000. It also tightens sick‑leave rules by ending the phone‑issued sick note and requiring a medical certificate from the first day of illness.

Labour‑market changes include a modest expansion of fixed‑term contracts and a planned reduction of federal ministry staff by 8 % through digitisation. A pension‑reform component raises the basic retirement age and introduces new anti‑benefit‑fraud measures. The coalition plans to increase the flat tax on Mini‑jobs from 2 % to 5 %.

The package is justified as a means to achieve economic growth of more than 1 % next year, up from the current forecast of 0.9 %. Business groups have welcomed the reform, calling it a “long‑overdue change of course,” while trade unions warn that parts of the plan could erode workers’ rights. Green Party leader Franziska Brantner criticised the package as “mutless,” saying it offers “no big relief for the well‑off and adds bureaucratic burdens.” An expert at the Institute of the German Economy (IW) estimated the tax changes will generate about €3 billion in extra revenue but assured that “no company will go insolvent because of it.” Parliamentary approval is still required.

The reforms have sparked debate over their impact on Germany’s competitiveness, social fairness and the future of low‑wage employment.