German coalition agrees tax relief for low earners, higher taxes for rich

The German coalition government of CDU/CSU and SPD has agreed on a package of economic reforms, including €10 billion in annual tax relief for lower and middle incomes, financed by higher taxes on the wealthy. The plan also introduces labor market changes, pension reforms, and measures to reduce bureaucracy.

The tax reform, effective January 1, 2027, will save a family with two children and €60,000 annual income about €600 per year Source: lavanguardia. To compensate, a new tax rate of 47% for incomes above €280,000 and 45% for incomes above €250,000 will be introduced Source: infobae. The coalition calls this a "fair distribution of burdens" Source: euronewses.

Labor and pension changes

Labor reforms include mandatory sick notes from the first day of illness, ending the practice of obtaining them by phone Source: lavanguardia. Temporary contracts without cause will be allowed for up to 48 months until 2030 Source: infobae. The pension reform, based on expert proposals, includes gradually raising the retirement age and introducing a capital-funded pension Source: euronewses.

Political context

The package aims to address economic stagnation and counter the rising popularity of the far-right AfD before key regional elections in September Source: lavanguardia. Chancellor Friedrich Merz stated, "Citizens want decisions, not internal fights" . The legislative process is expected to begin after the summer.