German coalition agrees on sweeping reform package in key breakthrough
Summary
Germany’s ruling coalition led by Chancellor Friedrich Merz announced a large reform plan called the “Programme for Revival and Employment” to boost the economy. The plan includes tax cuts for lower and middle incomes, pension system changes, stricter sick leave rules, and less bureaucracy, with many measures starting in 2027.Key Facts
- The reform package includes 34 measures covering taxes, pensions, labor rules, and bureaucracy.
- About €10 billion ($11.4 billion) in annual income tax cuts will benefit lower and middle-income earners starting January 1, 2027.
- The highest earners will pay more to finance the tax relief through a surcharge restructuring.
- Pension changes will tie retirement age to life expectancy after 2031, potentially raising it above 67 by the late 21st century.
- Sick leave rules will require a doctor’s note from the first day of illness, removing the pandemic policy of telephone notes.
- Labor rules will allow fixed-term contracts without cause to last up to 48 months, double the current limit.
- The reform aims to reduce bureaucracy and ease challenges from high energy costs, global competition, and trade pressures.
- The package needs approval from Germany’s Bundestag (lower house) and Bundesrat (upper house) before becoming law.
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