02/07/2026
German Chancellor Friedrich Merz presented a 34-point economic reform package on Thursday that includes changes to pensions, taxes and labor laws designed to increase growth and competitiveness.
The government plans to pass the main parts of the package through parliament by the end of the year.
The pension reforms will follow recommendations from the pension commission to add a capital markets-based component to the state pension system. The retirement age will gradually increase over the coming decades.
Households will receive income tax relief of more than €600 ($685) for a working family with two children through higher allowances and reduced progression for middle incomes. The measures will provide an estimated €10 billion in annual relief.
The tax cuts will be partially funded by raising the top tax rate to 47% from 45% for high earners with annual taxable income of €280,000 or more.
Labor market changes will require workers to obtain medical certificates from the first day of sick leave instead of calling in sick by telephone. Companies will be able to offer fixed-term contracts for up to 48 months for new hires through 2030. Employers will also have more flexibility for dismissal-with-compensation arrangements for very high earners.
The package includes support measures for key sectors including automotive, chemicals, pharmaceuticals, clean technology, machinery, batteries, semiconductors and artificial intelligence. The Deutschlandfonds investment funding framework will be expanded into a strategic investment vehicle focused on resilience, energy and raw materials.
Welfare fraud enforcement will be strengthened through increased data sharing among authorities. The electricity distribution grid expansion will be accelerated with a goal to cut network project implementation times by half.