Under-fire leader unveils sweeping reforms for Germany

German Chancellor Friedrich Merz’s coalition has announced a package of reforms, including tax cuts for low-income families and sweeping pension reforms, in a bid to get the country’s stagnant economy back on track.

The 34 measures announced by the ruling coalition include income tax cuts for low- and middle-income families, an overhaul of the creaking pension system, stricter rules for employees’ sick leave and reducing the country’s stifling bureaucracy.

“These reforms all have one goal: we are heading towards the future,” Merz said Thursday. he said.

“We are empowering ourselves to live well in these new times.”

Merz’s coalition of conservative and progressive parties took office more than a year ago promising to reform and fix Germany’s stagnant economy, the largest in Europe.

Since then, he is no longer very popular, partly due to perceptions that he has put up a fight but has achieved little so far.

Merz is trying to save the governing coalition from this negative reputation.

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

Germany’s economy returned to modest growth in 2025 after shrinking for two consecutive years.

The government expects very low growth of 0.5 percent in 2026; this figure was brought down due to the effects of the war in Iran.

Germany’s economy faces increasingly costly healthcare and pension systems caused by high production costs, lagging private investment and an aging population.

On Thursday, government coalition leaders said the tax cuts, when fully implemented in 2028, would provide annual tax relief of around 600 euros ($A990) for a family with two working parents, two children and a total taxable income of 60,000 euros.

The tax cut will be financed mainly by increasing the top tax rate from 45 percent to 47 percent for top earners with annual income of 280,000 euros or more.

The pension system reform will involve gradually increasing the retirement age, which is currently between 65 and 67 years depending on the number of years worked, in line with life expectancy.

Stricter rules on sick leave will no longer allow employees to call in sick for up to three days without seeing a doctor or request a one-week sick leave letter without actually seeing the doctor.

Instead, employers will be able to request a doctor’s report from the first day the person goes on sick leave.

Merz has repeatedly complained that the sick leave rate in Germany is too high and that it hurts productivity.

Finance Minister Lars Klingbeil, who stood by Merz, said the government was taking a tougher line against China and would protect companies from unfair competition.

When it comes to Germany’s out-of-control bureaucracy, various reporting and documentation requirements should be eliminated and data protection reduced to the European minimum, the government said, adding that there would be less red tape when it comes to filing tax returns.

The government aims to reduce the number of staff in federal ministries by 8 percent through digitalisation.

Alice Weidel, co-chair of the populist-nationalist Alternative for Germany party, which is leading in opinion polls, mocked the reform package.

On X, he described the measures as “an even more left-wing redistribution and minimal concessions that do not deserve to be called ‘reform’.”

Still, Merz appealed to all Germans to “support us in carrying out the reforms that are necessary now.”

via Reuters