Germany unveils 34-point economic reform push with tax relief and pension changes

German Chancellor Friedrich Merz joined his coalition partners on Thursday to unveil a wide-ranging set of policy changes intended to lift the nation’s stalled economy.

The agenda covers 34 steps. Among them are lower income taxes for households on low and middle earnings, major changes to the strained pension framework, stricter controls on worker sick leave, and moves to ease heavy administrative burdens.

“These reforms all have one goal: We’re setting out into the future,” Merz said Thursday. “We’re strengthening ourselves so that we can live well in these new times.”

His alliance of centre-right and centre-left parties entered government a little more than a year ago promising overhauls that would reverse Germany’s weak economic performance — the largest in Europe. Since then, public support has fallen sharply, fuelled by a view that leaders have fought among themselves and delivered scant results. Merz is seeking to shed that image.

“From the very beginning, we set an agenda with a single goal in mind: We want to get Germany back on track. It is now clear that this is possible,” the conservative chancellor said.

After contracting in two successive years, the economy posted slight growth last year. Officials project a muted expansion of 0.5 per cent for the current year, revised lower because of consequences from the war in Iran.

With 83.5 million residents, Germany was already contending with stronger rivalry from Chinese firms, elevated energy prices after Russia’s full-scale assault on Ukraine, and pressure from US President Donald Trump’s tariffs and trade threats. Structural strains run deeper still: expensive production, weak private investment, and growing outlays for health care and pensions as the population ages.

Coalition chiefs said Thursday that once the tax reductions take full effect in 2028, a household with two earners, two children and taxable income of 60,000 euros (US$68,640) would save roughly 600 euros (US$686.40) a year. Overall annual relief under the package would reach about 10 billion euros (US$11.4 billion).

Pension changes would lift the retirement age step by step. The age now sits between 65 and 67, depending on how long someone has worked, and would track life expectancy. Leaders said they would adopt proposals issued last month by a panel of experts and politicians appointed by the government to steady the system. The goals are to stop benefits from declining and avoid a large, lasting rise in the contribution workers pay into the scheme.

On sick leave, staff would no longer be able to stay off work for as many as three days without a medical visit, or telephone a physician for a week-long certificate without an in-person appointment. Employers could instead require a doctor’s note from the first day of absence. Merz has often argued that Germany’s high sick-leave rate is damaging productivity.

Officials also said several reporting and paperwork duties would be scrapped, data-protection rules narrowed to the European Union floor, and tax-filing procedures simplified.

Alice Weidel, co-leader of the far-right Alternative for Germany party, which finished second in last year’s national elections, dismissed the package. On X, she labelled it an “even more left-wing redistribution, and minimal compromises that don’t deserve to be called ‘reforms’”.

“The fact that this is being sold as a ‘breakthrough’ shows only one thing: this government’s complete inability to reform,” she wrote.

Merz still urged the public to get behind the measures.

“We know that you, ladies and gentlemen — the citizens of our country — want decisions, and you don’t want conflict. And that is exactly what we have delivered,” he said while presenting the plans in the chancellery garden in Berlin.

“Join us, support us in carrying out the reforms that are now necessary.”