German Chancellor Friedrich Merz on Thursday announced a 34-point economic reform package designed to lift growth and improve the country's competitiveness. The government said it will seek parliamentary approval for the main components before the end of the year.
Pensions and taxation
The proposed pension revisions follow recommendations from a dedicated pension commission and would add a capital markets-based component to the state pension system. In addition, the retirement age is set to rise gradually over the coming decades, according to the package.
On taxation, the plan provides relief for households by increasing allowances and reducing progression for middle incomes. The measures are expected to deliver more than 600 in income tax relief for a working family with two children, and are estimated to cost about 10 billion a year.
To help finance part of those cuts, the government plans to increase the top personal income tax rate to 47% from 45% for taxpayers with annual taxable income of at least 280,000.
Labor market and workplace rules
The package changes several workplace rules. Employees will be required to obtain and present medical certificates from the first day of sick leave rather than calling in by telephone. The reforms also permit employers to offer fixed-term employment contracts lasting up to 48 months for new hires through 2030. For very high earners, companies will have more latitude to agree dismissal arrangements that include compensation.
Sector support and strategic investment
Targeted support is included for a set of key industries: automotive, chemicals, pharmaceuticals, clean technology, machinery, batteries, semiconductors and artificial intelligence. The existing Deutschlandfonds investment funding framework will be expanded and refocused as a strategic investment vehicle prioritizing resilience, energy and raw materials.
Welfare enforcement, grid expansion and trade measures
The government will strengthen enforcement against welfare fraud by increasing data sharing between authorities. Electricity distribution grid expansion is slated to be accelerated, with an aim of halving the time needed to implement network projects.
Trade policy changes would reinforce EU anti-dumping and anti-subsidy rules. The plan also calls for consideration of technology-transfer requirements in specified strategic sectors when non-European investments are involved.
Housing, finance and regional powers
A federal housing company will be established with a mandate to build affordable housing. Lending requirements for property will be eased to stimulate mortgage financing. New legislation will bar regional authorities from converting private rental housing into public control.
Deregulation and administration
The package includes cuts to reporting and documentation obligations. Corporate compliance burdens would be narrowed by limiting supply chain due diligence duties to very large companies. Administrative processes are to be streamlined by introducing automatic approval of applications after four months unless an authority intervenes. In addition, the federal administration will aim to reduce staffing by 8% across much of the government.
This set of reforms combines fiscal measures, labor-market adjustments, targeted industrial support and administrative streamlining. The government has set a timetable to move the principal elements through parliament by the end of the year.