Germany’s governing coalition has agreed on a wide-ranging package of economic reforms after hours of negotiations in Berlin, introducing changes to taxes, pensions, labour rules and public spending policy. The package includes provisions cracking down on existing sick leave policies.
The deal was reached following around seven hours of talks between Chancellor Friedrich Merz’s CDU/CSU bloc and its coalition partner, the SPD. Officials described the agreement as a coordinated effort to support growth and address long-running structural issues in the German economy.
Speaking after the negotiations, Merz said the government was focused on improving competitiveness and reducing administrative burdens. “We are working to increase the flexibility of our businesses,” he told reporters in Berlin, according to EuroNews. “We are working to cut red tape. We are working to protect our welfare state, and we are working to ease the burden on employees and companies by lowering taxes,” he said while presenting what the coalition called the “Programme for Revival and Employment.”
The reform package includes 34 separate measures. Among them are income tax adjustments, updated pension rules, and new restrictions on sick leave procedures. The government said the changes are designed to strengthen economic performance and reduce pressure on public finances.
Labour market reforms include expanded use of fixed-term contracts and longer permitted Sunday trading hours. The government also plans to tighten sick leave rules, requiring employees to provide a medical certificate from the first day of absence. Merz has previously raised concerns about rising sick leave levels and their impact on productivity.
Pension reforms are also included, with proposals to gradually align retirement age increases with life expectancy. A government-appointed commission recommended measures aimed at stabilising the system and preventing long-term contribution hikes.
The package also includes a ban on the nationalization of housing companies, along with regulatory changes introducing “sunset clauses” for certain state benefits to limit long-term bureaucratic expansion.
The reforms come as the government faces mounting political pressure ahead of regional elections scheduled for September, where the populist Alternative for Germany party has been leading in some polls.
AfD co-leader Alice Weidel criticised the agreement on social media platform X, describing it as “an even more left-wing redistribution and minimal compromises that don’t deserve to be called ‘reforms.’”
She added: “The fact that this is being sold as a ‘breakthrough’ shows only one thing: this government’s complete inability to reform.”
The deal was reached following around seven hours of talks between Chancellor Friedrich Merz’s CDU/CSU bloc and its coalition partner, the SPD. Officials described the agreement as a coordinated effort to support growth and address long-running structural issues in the German economy.
Speaking after the negotiations, Merz said the government was focused on improving competitiveness and reducing administrative burdens. “We are working to increase the flexibility of our businesses,” he told reporters in Berlin, according to EuroNews. “We are working to cut red tape. We are working to protect our welfare state, and we are working to ease the burden on employees and companies by lowering taxes,” he said while presenting what the coalition called the “Programme for Revival and Employment.”
The reform package includes 34 separate measures. Among them are income tax adjustments, updated pension rules, and new restrictions on sick leave procedures. The government said the changes are designed to strengthen economic performance and reduce pressure on public finances.
Labour market reforms include expanded use of fixed-term contracts and longer permitted Sunday trading hours. The government also plans to tighten sick leave rules, requiring employees to provide a medical certificate from the first day of absence. Merz has previously raised concerns about rising sick leave levels and their impact on productivity.
Merz told reporters, "We can no longer accept the extraordinarily high levels of sick leave in our companies. We are abolishing sick leave by phone and introducing the requirement to submit a medical certificate from the very first day of illness. We know this is a tough decision, but we can no longer afford this competitive disadvantage caused by prolonged absences from work."
The previous policy allowed workers to take up to six weeks of paid leave for an illness, with the six-week leave starting again if an employee fell ill with a different sickness.
On taxation, the coalition plans to maintain the current top income tax rate of 42%, but raise the income threshold at which it applies to €70,000. Higher earners will face new brackets under the plan, with a 45% rate beginning at €250,000 and a 47% rate applying above €280,000. Officials estimate the overall package will deliver around €10 billion in annual tax relief, with average households gaining roughly €600 per year.Pension reforms are also included, with proposals to gradually align retirement age increases with life expectancy. A government-appointed commission recommended measures aimed at stabilising the system and preventing long-term contribution hikes.
The package also includes a ban on the nationalization of housing companies, along with regulatory changes introducing “sunset clauses” for certain state benefits to limit long-term bureaucratic expansion.
The reforms come as the government faces mounting political pressure ahead of regional elections scheduled for September, where the populist Alternative for Germany party has been leading in some polls.
AfD co-leader Alice Weidel criticised the agreement on social media platform X, describing it as “an even more left-wing redistribution and minimal compromises that don’t deserve to be called ‘reforms.’”
She added: “The fact that this is being sold as a ‘breakthrough’ shows only one thing: this government’s complete inability to reform.”
