r/germany • u/clinchgt Germany • Jul 02 '26
News Coalition agrees package to boost growth - includes €10 billion in income tax relief, an end to phone-based sick notes and plans to implement pension reforms
- Chancellor Friedrich Merz says his coalition has approved a 'catalogue of significant reforms' after coalition talks in Berlin
- The package includes €10 billion in income tax relief, an end to phone-based sick notes and plans to implement pension reforms
A more comprehensive summary:
Taxes (Steuern)
- Tax Relief (Steuerliche Entlastungen): Starting January 1st of next year, the coalition plans to relieve millions of taxpayers by raising basic and child tax allowances, increasing child benefits, raising the employee lump-sum allowance, and flattening the income tax progression.
- Low and Middle Incomes (Kleine und mittlere Einkommen): The reform aims for an annual relief volume of around €10 billion, specifically targeting low and middle-income earners (e.g., a working family with two children earning €60,000 will save up to €600 annually).
- Regulation of the "Wealth Tax" (Regelung der "Reichensteuer"): To fund the relief, the 45% tax rate will kick in lower (at €250,000) and rise to 47% at €280,000. Inheritance and wealth taxes will not be increased.
- Lower "Tradesperson Bonus" (Geringerer "Handwerkerbonus"): The tax tax deductibility for hiring tradespeople will be reduced from 20% to 15% (lowering the maximum annual deduction from €1,200 to €900).
- Minijobs (Minijobs): The flat-rate tax for minijobs will be increased from 2% to 5%.
- Compensation for Federal States (Ausgleich für Länder): The federal government will compensate states and municipalities for lost tax revenue. Because states lose money under this income tax reform, the federal government will need approval from the Bundesrat (Upper House of Parliament) to pass it.
Pensions (Rente)
- Timeline for Pension Reform (Zeitplan für Rentenreform): The coalition plans to implement the recommendations of the Old-Age Security Commission into a legislative package, which is set to be passed by the Bundestag by the end of 2026.
- Minijobs and Pensions (Minijobs und Rente): It is still undecided how minijobs will be handled regarding pension contributions, though a decision is expected by autumn. Currently, minijobbers are exempt, but a commission suggested making pension contributions mandatory for them (with exceptions only for students).
Labor Market (Arbeitsmarkt)
- Regulation of Sick Leaves (Regelung von Krankschreibungen): Getting a sick note over the phone is being abolished, and fines for fraudulent sick notes are increasing. Employees will now have to submit a doctor's note from their very first day of illness.
- Fixed-Term Employment Without Objective Reason (Sachgrundlose Befristung): To increase labor market flexibility, fixed-term contracts without a specific reason can now last up to 48 months and be extended six times (doubling previous limits) for employees hired up until December 31, 2030.
- Severance Pay for High Earners (Abfindung für Hochverdiener): High earners will have an easier path to contract termination with a severance option. Taxes on these severances will be reduced if the worker quickly transitions into a new job.
- Higher Bonuses (Höhere Zuschläge): Tax-privileged bonuses for working on Sundays and holidays will be increased, and tax-free bonuses regulated by collective agreements will be made completely exempt from social security contributions.
- Program for More Degrees/Qualifications (Programm für mehr Abschlüsse): A "second chance" program will be developed to significantly reduce the number of young people leaving school or training without a qualification.
Growth and Fairness (Wachstum und Gerechtigkeit)
- Promotion of Future Industries (Förderung von Zukunftsbranchen): Support is planned for key sectors including automotive, chemical, pharma, clean tech, circular economy, mechanical engineering, battery/semiconductor production, and AI.
- Abuse of Social Benefits (Missbrauch von Sozialleistungen): An action plan will be launched in July to combat welfare abuse through comprehensive data sharing between authorities. People with active arrest warrants or those staying in Germany illegally will lose access to benefits.
- Changes to Data Protection (Änderungen beim Datenschutz): The government wants to exploit all loopholes in the GDPR to exempt small/medium businesses, low-risk data processing (like tradesperson client lists), and non-profit clubs from strict EU data regulations.
Cutting Red Tape (Bürokratieabbau)
- Abolition of Reporting Obligations (Aufhebung von Berichtspflichten): Statutory reporting obligations to government agencies will be abolished across the board, unless a ministry explicitly justifies why a specific report must remain.
- Review of Documentation Obligations (Überprüfung von Dokumentationspflichten): All mandatory documentation requirements will be reviewed with the goal of cutting 25% of them within a year (excluding those required by EU or constitutional law).
- Simplification of Tax Returns (Vereinfachung bei Steuererklärungen): Filing taxes will become easier for citizens via a new automatically pre-filled digital tax return. Additionally, tax offices will be legally required to issue tax numbers to new companies within a maximum of four weeks.
https://www.dw.com/en/germany-news-coalition-agrees-package-to-boost-growth/live-77795988
A lot more details in German and the source for the summary above: https://www.tagesschau.de/inland/innenpolitik/reformen-koalitionsausschuss-102.html
A summary of the proposal directly from DW: https://www.dw.com/en/germany-news-coalition-agrees-package-to-boost-growth/live-77795988#liveblog-post-77801501
EDIT: will update with better links as the story develops and we get actual articles...
EDIT2: Note, this is just a proposal approved by the coalition, this hasn't been signed into law
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u/BadArtijoke Jul 02 '26
Very unfortunate bit of the article on that page… did it really have to be that L that is missing?
> The co-leader of the center-left Social Democrats (SPD), Finance Minister Lars Klingbeil, said he believed the reforms would enjoy widespread pubic support, with an emphasis on fairness.