BERLIN: Germany’s governing coalition has agreed on a wide-ranging package of economic reforms, including abolishing the practice of obtaining sick notes by telephone, as part of efforts to reduce worker absenteeism and boost economic growth.
Announcing the measures on Thursday after lengthy coalition talks in Berlin, Chancellor Friedrich Merz said the reforms were designed to make businesses more competitive while easing financial pressure on workers and employers.
“We are working to increase the flexibility of our businesses,” Merz said.
“We are working to cut red tape. We are working to protect our welfare state, and we are working to ease the burden on employees and companies by lowering taxes,” he added, describing the package as a “great leap forward” for Germany’s economy.
The reforms include income tax reductions worth €10 billion ($11.4 billion), funded through higher taxes on individuals earning more than €250,000 annually.
Finance Minister and Vice Chancellor Lars Klingbeil said the wealthiest citizens would shoulder a greater share of the tax burden.
“The highest earners in this country will take on a larger share” of the tax burden, he said.
“That is fair, so that our country can move forward.”
According to the coalition, the tax cuts will leave the average family around €600 better off each year.
The agreement also introduces changes to the pension system that will gradually raise the retirement age beyond 67. In addition, businesses will face fewer corporate reporting requirements, while employers will be allowed to hire workers on temporary contracts for up to four years.
Business groups welcomed the reforms, although Germany’s IG Metall trade union criticised the labour measures, describing them as “an attack on workers’ rights”.
The coalition, made up of the centre-right CDU/CSU alliance and the centre-left SPD, has been in office since May last year and had struggled for months to reach consensus on several contentious economic issues.
The government is also seeking to restore public confidence as the far-right Alternative for Germany (AfD) continues to lead national opinion polls ahead of key regional elections in eastern Germany scheduled for September.
An AfD victory could result in the party leading a state government for the first time in post-war Germany, adding pressure on Merz, whose approval ratings have remained weak.
“We are doing everything we can to overcome our country’s structural weakness when it comes to economic growth,” Merz said, acknowledging that “we are under pressure from many sides”.
Germany’s export-driven economy has faced mounting challenges in recent years, including higher energy and labour costs, stronger competition from China, and trade uncertainty linked to US President Donald Trump’s tariff policies.
As part of the reform package, the coalition also pledged to push the European Union to take stronger action against “unfair competition” and introduce stricter rules governing foreign investment in strategic industries and critical infrastructure.
Economists offered mixed assessments of the reforms.
Marion Muehlberger, a senior economist at Deutsche Bank, described the package as “one of (Germany’s) biggest reform packages in decades” and said it demonstrated the government’s “ability to agree on important structural reforms”.
She added that the measures “should bode well for sentiment and dovetail with our forecast that growth will pick up in the second half of the year”.
Holger Schmieding of Berenberg said that “none of the many reforms… will be ground-breaking on its own”.
“But on top of the major pension reform proposal, which the government had already endorsed ten days ago, the reform deal can make a real difference,” he said.
“If implemented, Germany can become a better place to invest and create jobs again.”
However, Marcel Fratzscher, president of the DIW Institute, gave a more cautious assessment, saying the reforms did not represent “a great success but rather a symbolic package”.
