German Families to Save €600 Yearly as Coalition Unveils €10 Billion Tax Relief Package
Published on 07/02/2026 at 18:15 | Redaktion boerse-global.de
A family earning €60,000 per year will be €600 better off under the 34-point reform bundle passed by Germany’s federal government. Chancellor Merz says the package is designed to re-energise the economy and make the labour market more flexible.
Starting in 2027 and 2028, the basic tax-free allowance, child benefit and the employee lump-sum deduction will all rise. The total cost to the public purse: roughly €10 billion.
To pay for it, top earners face steeper rates. Income above €250,000 will be taxed at 45 percent; above €280,000 the rate climbs to 47 percent. The top marginal rate of 42 percent stays in place for everyone else. Mini-jobbers also take a hit: the flat-rate tax jumps from 2 to 5 percent. Meanwhile the tax break for hiring tradespeople shrinks from 20 to 15 percent.
Phone sick notes are gone. From day one, employees must again produce a paper certificate — the so-called “yellow card.” Companies can opt out if they wish. The German Association of General Practitioners called the rule “organisationally extremely burdensome.” As a concession, extra pay for Sunday and public-holiday work becomes tax-free for up to €75 an hour.
Easier firing for top earners. Anyone earning more than €14,787.50 gross per month can be dismissed more easily. Severance payments will also get a tax sweetener — but only if the worker quickly finds a new job.
Fixed-term contracts double. The maximum duration for fixed-term employment without a specific reason jumps from 24 to 48 months. Up to six extensions are allowed for anyone hired before the end of 2030. The share of fixed-term workers had fallen from 8 percent (2010) to 6 percent (2024). Employers applaud the move; unions are furious. DGB and ver.di say it betrays a growing distrust in staff.
Pension reform in the pipeline. The coalition vows to implement all 33 recommendations of the pension commission by year-end. Plans include a capital-funded pillar and a later retirement age — beyond 67. From 2031, a “sustainability factor” will be baked into the calculation.
Bureaucracy and housing. Every fourth documentation requirement is to be scrapped. Data protection will be trimmed to the EU minimum. A new state-owned construction company is meant to speed up home building. The government explicitly rules out federal-level expropriation of private housing firms.
Economists are split. The German Economic Institute calls the package “an important step.” The DIW describes it as “symbolic politics with modest growth effects.” A planned electoral reform was postponed.
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