German Chancellor Friedrich Merz’s government has announced a long-awaited reform package worth around 10 billion euros annually in tax relief and incentives for lower-income citizens. The plan also introduces a system linking the retirement age to average life expectancy.
The package, whose details are yet to be finalised, is designed primarily to boost consumption and spur economic growth. However, a significant part of the business community argues that export support is equally important, as it has a much greater impact on employment and improves Germany’s trade balance.
The reform package shows that both coalition partners were ready to compromise and that the government is moving forward with structural reforms to be implemented by the end of the year – commented Marion Muhleberger, senior economist at Deutsche Bank.
Pension reform and higher taxes for the wealthy
One of the key elements is a change to the pension system, which will be gradually raised in line with the average increase in life expectancy. This decision is well received by markets, but is seen as a long-term measure, while annual pension payouts from the German equivalent of ZUS already exceed 300 billion euros.
The package also introduces a new 2 percentage point solidarity contribution, split equally between employers and employees – 1 percent each from income. Individuals with annual incomes above 280,000 euros will see their top income tax rate rise from 45 percent to 47 percent.
Cuts to social benefits and disappointing growth outlook
The government plans to tighten social spending by eliminating the possibility of obtaining sick leave by phone, cutting sickness benefits, and taking steps to improve the availability of affordable housing. These measures aim to reduce the fiscal burden on the welfare state.
According to budget assumptions, GDP was initially forecast at 1.3 percent for 2026, but has since been revised down to 0.5 percent for this year and 0.9 percent for 2027. The modest reform package presented publicly is unlikely to provide the additional impetus needed to pull the German economy out of stagnation.
Źródło: WNP.PL, Fot. Hannibal Hauschke / PAP
