Germany's Coalition Passes Sweeping Labor and Tax Overhaul — Critics Warn Safety Could Slip
Published on 07/03/2026 at 17:39 | Redaktion boerse-global.de
A major 34-point reform package approved by the grand coalition reshapes German employment rules, tax brackets, and bureaucracy. While the government calls it a modernisation push, associations are urging caution.
The TĂśV-Verband, Germany's technical inspection body, voiced sharp concern over one piece of the plan: a blanket cancellation of all reporting duties to state authorities. Ministries must now justify the necessity of each report from scratch. A quarter of all documentation requirements are slated for removal within the next twelve months. From the end of 2027, a tacit approval rule kicks in after four months. TĂśV managing director Joachim BĂĽhler warns, "Less bureaucracy is correct, but not at the expense of safety." He insists that workplace safety structures must not be dismantled and that innovation and security should not be pitted against each other.
On the labour front, the reform dramatically loosens fixed-term contracts. Until the end of 2030, employers can hire staff for up to 48 months without stating a reason, with a maximum of six extensions. The requirement for a written form for such contracts disappears entirely.
Sick leave rules tighten as well. The telephone sick note is abolished. Employees must present a medical certificate of incapacity for work from day one again. Stiffer penalties apply for false certificates. The government aims to boost workplace attendance and curb abuse.
High earners face a change in protection. Those with annual gross income above around €177,450 will see relaxed dismissal rules from January 2027. Easier terminations in exchange for severance payments become possible, intended to inject more dynamism into top management.
Small and medium-sized enterprises and associations get relief on data protection. Specific exemptions from the General Data Protection Regulation are planned.
Tax relief for low and middle incomes kicks in from January 2027, with a total volume of about €10 billion. The basic tax-free allowance, child allowance, child benefit, and the employee lump-sum allowance all rise. A family with two children and a gross annual income of €60,000 stands to save up to €600 per year.
To fund this, the package introduces several counter-measures:
- An increased "rich tax": 45 percent on income starting at €250,000, and 47 percent at €280,000.
- The mini-job flat-rate rises from two to five percent.
- The tax deductibility of craft services drops to 15 percent.
- The KfW development bank will transfer €500 million each in 2027 and 2028.
Pension policy adopts all 33 recommendations from the old-age security commission. Plans include a capital-based pension, raising the retirement age beyond 67, and abolishing the pension after 45 contribution years. From 2031, a new sustainability factor enters the calculation.
Statutory health insurance funds receive a €16.3 billion relief in 2027. The government also promotes strategic sectors: semiconductors, battery technology, artificial intelligence, and pharmaceuticals. A new federal law is designed to block the socialisation of rental apartments.
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