German Chancellor Friedrich Merz on Thursday unveiled a sweeping pensions, tax, and labor reform package aiming to revive Europe’s former economic powerhouse and get the country “back on its feet.”
The 34-point reform package, Merz explained, is the result of hours of talks between the ruling CDU/CSU-SPD center-right and center-left coalition. Merz affirmed at the end of the meeting, “We are modernizing our country and leading it into the future.”
Some of the reform’s goals aim for a 600 euro in annual tax relief for low and middle income German families, amounting to some 10 billion euros in total. Euronews detailed that the tax reforms would keep the 42 percent top income tax rate unchanged, but the steep rate will only apply to incomes above the 70,000 euros in the future. Per the German government, the tax reforms will come into effect on January 1, 2027.
On the subject of Germany’s ailing pensions system, the reforms reportedly call for a gradual raise on the retirement age from 65 to 67 years — while also implementing a series of recommendations presented by a group of experts in a bid to prevent the pensions system from falling. German Labor Minister Bärbel Bas described the pension package as a “masterpiece,” with Chancellor Merz describing it as the “second major reform after the healthcare reform following the reform of statutory health insurance.”
The German government affirmed that their goal is to have the pensions reform passed by the Bundestag parliament by the end of 2026.
The proposed labor reforms call for a reduction of lost work days through sick leaves and the end of over-the-phone sick notes, preventing workers from calling in sick by telephone without a day-one medical certificate that can demonstrate their illness. Merz has reportedly complained several times int he past that the rate of sick leave in Germany is too high.
“This is a tough decision, we know that. But we can no longer afford this competitive disadvantage caused by long absences from work,” Merz said.
The ruling government coalition is also proposing changes to “fixed-term contracts without objective justification.” The proposed changes also call for longer Sunday opening hours and other expanded options for fixed-term employment contracts, and a ban on the nationalization of housing companies so as to reduce “uncertainty for investors.”
The announcement comes at a time when Merz and the ruling German coalition find themselves facing record-low approval ratings at home.
Last month, the results of a survey published by Tagesschau indicate that only 12 percent of respondents expressed satisfaction with the performance of the current German government. Similarly, only 13 percent of respondents had a favorable opinion on the current state of Germany’s ailing economy — a seven-percent drop from January.
Per the poll, 38 percent of respondents said they anticipate a worsening of the German economy over the next twelve months, a result that jumps to “nearly one in two people” among respondents from eastern Germany. The survey also noted that the populist Alternative for Deutschland (AfD) party led by Alice Weidel is leading the national opinion — surpassing the CDU/CSU-SPD coalition.
Weidel criticized the German government’s reforms in a Thursday social media post, describing the proposals as “another broken CDU election promise” and as “even more left-wing redistribution and minimal compromises that don’t deserve the name ‘reform.’”
“The fact that this is being sold as a ‘breakthrough’ shows just one thing: the complete inability to reform of this government,” she wrote.
Germany is scheduled to hold regional state elections in September in Saxony-Anhalt, Berlin, and Mecklenburg-Western Pomerania. Polls reportedly suggest that the AfD is ahead in Saxony-Anhalt and in Mecklenburg-Western Pomerania.