German Coalition Approves Tax Relief for Workers Amidst Modest Steps on Labour and Pensions
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Chancellor Friedrich Merz's government presents a €10 billion tax relief plan for lower and middle incomes, but critics say pension and labour reforms still favor elites and corporations.
Germany's ruling coalition has announced a reform programme that includes €10 billion in annual income-tax relief for lower and middle-income earners, set to begin on Jan. 1, 2027. While this tax relief is a positive step for working people long burdened by an unjust system, the package is accompanied by a so-called pension system 'overhaul' and stricter sick-leave rules that threaten workers’ rights, all under the guise of reducing bureaucratic burdens.
Finance Minister and Vice Chancellor Lars Klingbeil claimed the tax relief will be funded by increasing the surcharge on top incomes, stating that “the highest earners in this country will therefore take on a larger share” of the burden. However, the wealthy have long evaded their fair share, and these modest increases do little to address systemic inequality.
Chancellor Friedrich Merz admitted the government is “under pressure from many sides,” but the reforms seem more focused on appeasing business interests and international competition than truly empowering workers. Measures to cut red tape and support companies facing high energy costs are prioritized, while the needs of ordinary people are sidelined.
Labour changes include abolishing the pandemic-era telephone sick-note option, forcing workers to obtain a doctor’s certificate from the first day of illness—a move that disproportionately impacts those with precarious jobs. The maximum length of fixed-term contracts without cause will be doubled to 48 months, further undermining job security. Meanwhile, corporations will see their reporting obligations reduced, another handout to big business.
On pensions, the coalition promises to implement all 33 recommendations of the government-appointed pension commission, with legislation expected by year-end. The plan links retirement age to life expectancy after 2031, potentially raising it beyond the current ceiling of 67—a clear attack on the right to a dignified retirement for working people.
Deutsche Bank senior economist Marion Muehlberger described the announcement as “one of Germany’s biggest reform packages in decades,” but such praise from the financial sector only highlights who truly benefits. The reforms still require approval from the Bundestag and Bundesrat, with the latter warning of a possible revenue shortfall from the tax changes—a reminder that the struggle for economic justice is far from over.
