The German government has unveiled a broad package of reforms affecting the country’s tax system, labor market, and public administration, aiming to stimulate economic growth and reduce bureaucracy.
The reforms are expected to be fully implemented by 2028.
Presenting the package, the German Chancellor said the goal is to lower taxes and simplify administrative procedures to help return Germany to a path of sustainable economic growth.
Under the new tax system, a family with two children and an annual taxable income of €60,000 is expected to pay more than €600 less in taxes compared to the current system.
Low- and middle-income families will benefit from reduced taxation, as a larger portion of their income—particularly for households with children—will become tax-exempt.
The government will also increase child benefits and reduce payroll taxes, leaving households with more disposable income. However, these measures are expected to reduce annual tax revenues by approximately €10 billion.
To offset the shortfall, Germany plans to raise taxes on high-income earners. Individuals with taxable incomes above €250,000 will pay a 45% tax rate, while those earning more than €280,000 annually will face a 47% rate.
Labor Minister Bärbel Bas announced that fixed-term employment contracts may now last up to four years, with the possibility of being extended to six years. Employees will also be allowed to return to the same employer under new temporary contracts, a practice that was previously more restricted.
Significant changes are also planned for medical sick leave. Under the new rules, employees will no longer be able to obtain sick leave solely by telephone. Instead, they will be required to provide a doctor’s certificate from the first day of absence, although individual companies may still introduce additional internal policies.
The reform package also seeks to reduce bureaucracy by eliminating unnecessary legal reporting obligations to state institutions, retaining only those deemed essential by the relevant ministries.
In addition, the retirement age is expected to increase to 67.
