German Chancellor Friedrich Merz and his coalition government presented a comprehensive reform agenda Thursday comprising 34 separate measures designed to address economic stagnation. The package targets multiple areas of concern for policymakers, including personal income taxation, pension system sustainability, workplace sick leave policies, and regulatory burden reduction.
The income tax component would reduce levies for low- and middle-income households, with the coalition stating that once fully implemented in 2028, a family with two working parents, two children, and a combined taxable income of 60,000 euros would receive approximately 600 euros in annual tax relief. The total annual cost of the tax reductions is estimated at approximately 10 billion euros per year. The pension system component addresses long-term demographic challenges by proposing a gradual increase in retirement age aligned with rising life expectancy, while avoiding substantial increases to employee contribution rates.
The sick leave provisions would eliminate an existing allowance permitting workers to miss up to three days without medical documentation, and would restrict doctors’ ability to issue week-long sick leave certificates without direct patient examination. Instead, employers could request physician certification beginning on the first day of absence. Merz has previously emphasized that sick leave rates in Germany are excessive and damaging to productivity.
On bureaucratic reform, the government proposes eliminating various reporting and documentation requirements, reducing data protection standards to match European minimums, and streamlining tax filing procedures. The coalition took office just over a year ago amid pledges to revitalize Europe’s largest economy, which returned to modest growth after two consecutive years of contraction but faces continued headwinds from global competition, geopolitical tensions, and structural challenges. The government expects growth of 0.5% this year.
Opposition from far-right parties has been immediate, with Alternative for Germany co-leader Alice Weidel dismissing the package as inadequate reform disguised as redistribution. Merz called on German citizens to support the measures, characterizing them as necessary decisions to address national economic priorities.
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