German coalition agrees on changes to pensions, tax rates
Germany's coalition government has agreed on a wide-ranging package of tax, pension and labor reforms aimed at boosting the country's struggling economy, easing financial pressure on workers and businesses, and modernizing the welfare system.
The agreement was reached after hours of negotiations between the CDU (Christian Democratic Union), CSU (Christian Social Union), and SPD (Social Democratic Party). Chancellor Friedrich Merz described the reforms as a comprehensive strategy to revive economic growth, reduce bureaucracy, and improve Germany's competitiveness. The coalition approved a total of 34 measures covering taxation, pensions, employment and public administration.
One of the biggest changes is a reduction in income taxes for low- and middle-income households. According to the government, an average family could save around €600 per year under the new tax plan. At the same time, the coalition intends to lower the financial burden on businesses while encouraging investment and job creation to strengthen the economy.
The pension system will also undergo major reforms as Germany prepares for an aging population. The government plans to gradually raise the retirement age in line with life expectancy, discourage early retirement, and introduce a partially investment-based pension model inspired by systems already used in countries such as Sweden. The goal is to make state pensions more financially sustainable over the long term.
The coalition also announced stricter rules for sick leave, requiring employees to provide a doctor's certificate from the first day of absence. Alongside these measures, the government plans to reduce red tape, increase labor market flexibility, and streamline public administration. Coalition leaders said the reforms are designed to restore confidence in Germany's economy while protecting the country's social welfare system.