German coalition agrees tax, pension and labor overhaul
Germany’s governing coalition — Chancellor Friedrich Merz’s center-right CDU and the center-left SPD — announced agreement on a broad economic reform package after protracted negotiations. The centerpiece is roughly 10 billion euros a year in income-tax relief for lower- and middle-income earners from January 2027, financed by heavier surcharges on top earners.
The deal also adopts a pension commission’s recommendations to link the retirement age to life expectancy after 2031, potentially pushing it above the current ceiling of 67 over coming decades. Labor measures include doubling the maximum length of fixed-term contracts to 48 months and requiring a doctor’s note from the first day of illness, alongside cuts to corporate reporting requirements.
The package is as much political as economic. With the AfD rising in the polls before September elections in the east, Merz’s coalition is trying to show it can deliver on growth and cost-of-living pressures. The tax measures still need Bundestag approval and Bundesrat consent, so the agreement marks a breakthrough between the partners rather than final passage.