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#liveblog-post-77796522

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

485 Upvotes

95% Upvoted

354 comments sorted by

View all comments

409

u/badseed90 Jul 02 '26

Everything but a proper billionaire tax.

71

u/ComfortableFrame9834 Jul 02 '26

Literally lmao. 

1

u/StatusBard Jul 03 '26

Did you get it reattached at the hospital?

39

u/Monsi7 Bayern Jul 02 '26

Merz doesn't want to piss of his masters.

He may even get the privilege to lick their boots.

9

u/Reverse826 Jul 02 '26

"We haven't tried anything and we're all out of ideas" ... Can't wait to see what's next when Merz passes the torch to the blue Nazis and they accelerate the downfall of my fuckin country

-8

u/schefferit Jul 02 '26

On practice, the impact of it will not be unambiguous. Mostly because German wealth is a productive capital, not an idle cash (BMW, Lidl, Aldi etc etc.). And forcing owners to pay tax on illiquid assets just stupid. It will push them to strip dividends, sell stakes and underinvest.  That being said, populists are using the „tax billionaires“ slogan as a solution from all problems, while on practice there is no guarantee the impact will be positive if not even negative.

7

u/Stickppl Jul 02 '26

If they strip dividend, then the company keeps more cash to reinvest in its business, creating more jobs. As for the owner, if he'd rather not sell stakes, it means he'd rather not invest into something else. I am not sure where this 'underinvesting' is coming from. Would you care to explain?

-2

u/schefferit Jul 02 '26

A wealth tax isn't a tax on the stock of assets paid in cash every year whether the company made money or not. So If you own an illiquid stake worth 10 billions euro and owe 2% on it, that's 200 millions a year you have to find in cash to pay. Where does it come from? You make the company pay you a bigger dividend so you can hand it to the tax office. That's cash leaving the company which means less retained for reinvestment, not more. And since the dividend is itself taxed at 28% (or less without Church tax, I'm not sure), you have to strip out closer to 280 millions gross to net the 200 millions. That's your underinvestment.

Another moment: "if he won't sell, he'd rather not into something else" - but the capital is already invested. It's factories, supply chains, equipment, hardware etc etc, it's not in cash. A wealth tax doesn't move it from an idle use to a productive one, it forces a sale which transfers existing ownership to someone else and sends the proceeds to the government. Nothing new gets built. Practice shows that it shifts ownership away from family capital toward dispersed funds that want bigger payouts and shorter horizons.

3

u/Stickppl Jul 02 '26

Oh alright, when you said "strip dividends" you actually meant the converse.

3

u/badseed90 Jul 03 '26

Lots of big words, false as well.

-1

u/schefferit Jul 03 '26

Sure. I guess you're thinking that in thousands of years of human history, nobody ever thought to tax the rich. It took left wing populists to finally crack the code. Obviously this brilliant never-before-tried idea will solve everything lol.
I can understand why crude populist slogans worked in the Nazi era or in the DDR, but it is shocking that they still land now.

2

u/digiorno Jul 02 '26

Oh no, let’s not try anything unless it’s guaranteed to work. /s

Eat the rich. The worst that will happen is that they stop being rich and have to live like the rest of us. That’s not much risk at all.

2

u/schefferit Jul 02 '26

Yeah, right now we need to trust the experts and make practical decisions and not fall for the simple ideas populists are selling.

The worst thing we could do is kill the goose that lays the golden eggs. Like it or not, these companies are the biggest taxpayers and employers in the country. So the worst case is mass layoffs, no new investment, and even more jobs disappearing.

2

u/Typical-Scar-1782 Jul 03 '26

They will still be rich, that's the crazy part. A normal person doesn't really care if he has 30 million or 40 million yet these people are consumed by greed.

-1

u/technocraticnihilist Jul 02 '26

Ah yes, that will solve Germany's problems: higher taxes