Berlin is seeking the pace for the relaunch in a night of marathon negotiations, and the government has produced a reform package that Chancellor Friedrich Merz does not hesitate to call a turning point: “Today is a good day,” he told reporters at the end of the summit.
After hours of negotiations continuing until dawn between Thursday and the previous night, the leaders of the governing coalition announced the points of the agreement: a package that touches on pensions, taxation, bureaucracy, the labor market, and residential construction, aiming, in the chancellor’s own words, to put the country back on track.
PENSION REFORM AND THE DEMOGRAPHIC ISSUE
The first issue addressed concerns social security, a topic that has divided German public opinion for months amid an increasingly marked demographic imbalance. The coalition, formed by the Union (CDU and CSU) and SPD, intends to consolidate all 33 proposals developed by a special commission of experts and politicians into a single comprehensive law by the end of the year.
Among the most significant measures are the introduction of a mandatory funded pension and the end of the regime allowing retirement without deductions at 63 after 45 years of contributions.
The very fact that the commission, also composed of representatives from CDU and SPD, managed to reach broad agreement on the pension dossier had fueled cautious optimism within the coalition in the days leading up to the summit.
TAX RELIEFS FOR FAMILIES, TIGHTENING ON HIGH INCOMES
On the tax front, the government confirms the commitment made in the coalition contract: from January 1, 2027, an income tax reform designed to lighten the burden on low and middle incomes will come into effect. According to Merz’s estimates, an average family could save up to 600 euros per year, for a total volume of relief estimated at about 10 billion euros annually.
The financial coverage will mainly come from a tightening of taxation on higher incomes: those declaring a taxable income starting from 250,000 euros will face a 45 percent rate, while above 280,000 euros the rate will rise to 47 percent.
LESS BUREAUCRACY FOR BUSINESSES
The package then addresses a topic dear to the German productive sector, that of administrative simplification. The coalition has announced its intention to abolish all reporting obligations towards federal state entities through a specific law on the relief of such obligations. The mechanism will be reversed: it will no longer be the citizen or business that must justify the failure to complete a form, but the competent ministries that will have to justify the need to maintain a specific information obligation.
Also at the federal level, a principle of tacit consent is introduced: after four months without a decision by the administration, submitted requests will be automatically considered approved.
MORE FLEXIBILITY IN THE LABOR MARKET
The labor market is also affected by significant changes. Fixed-term contracts signed by the end of 2030 may be extended up to six times, instead of three as previously provided, a change designed to make companies more willing to hire.
Additionally, the tax bonus for those working on Sundays or public holidays increases, while German bakeries will be allowed to stay open longer on holidays.
Finally, the telephone sick note, introduced as an emergency measure during the Covid-19 pandemic, is abolished: from now on, a medical certificate will be required from the first day of absence.
HOUSING, HOUSING PLAN AND BAN ON EXPROPRIATIONS
On the residential construction front, the federal government intends to enact a law preventing the socialization of private companies active in the sector, in response to initiatives already launched in some Länder. At the same time, the government announces the creation of its own public housing company, with the declared goal of providing affordable housing.
ENTREPRENEURS SATISFIED, TAXPAYERS DISAPPOINTED, DOCTORS INFURIATED
From the world of business and healthcare professions come evaluations far from unanimous about the package. The president of the Bundesvereinigung der Deutschen Arbeitgeberverbände (BDA), the Confederation of German Employers’ Associations, Rainer Dulger, welcomes the agreement reached, calling it “a long-awaited change of course”: in his view, the package would strengthen the competitiveness of the German production system and restore confidence to investors, although further measures will still be necessary in the coming months, according to him.
Much more critical tones come instead from the Bund der Steuerzahler (BDS), the federation of German taxpayers, whose president Reiner Holznagel dismisses the tax reform with a bitter quip: “Grand coalition, small projects.” CDU and SPD, Holznagel recalls, had promised tangible relief on income tax, while the results from the coalition commission represent a real disappointment.
Even harsher is the reaction of the Deutscher Hausärzteverband (DHÄV), the association of general practitioners, whose president Markus Blumenthal-Beier calls the coalition’s choices on sick leave certification “absolutely catastrophic”: the abolition of the telephone certificate and the obligation to present a medical certificate from the first day of absence risk, in his opinion, overwhelming medical practices with “an enormous wave of bureaucracy, hardly manageable.”
LAST CALL FOR THE GOVERNMENT
The schedule now awaiting the coalition is tight: next week the cabinet must approve the 2027 budget project, which will take into account the newly agreed tax reform, along with the care reform project. Immediately after, the Bundestag and Bundesrat will enter the summer recess, but the main measures can still be initiated in parliament as early as July.
The agreement comes at a politically delicate moment: after the summer break, the governing parties will face three difficult regional elections, in Saxony-Anhalt (September 6), Mecklenburg-Western Pomerania, and the city of Berlin (September 20): events in which polls currently do not promise brilliant results for either the CDU or the SPD.
