Germany’s Coalition Unveils 34-Point Labour Overhaul: Higher Top Tax, Tougher Sick-Leave, and Extended Fixed-Term Contracts
03.07.2026 - 00:31:03 | boerse-global.de
Germany’s coalition committee agreed on Wednesday to a sweeping 34-measure package that touches nearly every corner of the labour market — from sick notes and dismissal protection to income tax brackets and the pension system. Employers cheered the plan as a long-overdue course correction, while unions accused the government of issuing a vote of no confidence in workers.
Tax Shifts: Lower Burden for Average Earners, Heavier Load for High Incomes
The total tax-relief volume reaches €10 billion. Starting in 2027, the basic allowance, the employee lump-sum deduction, and child benefit will all rise — the latter from €259 to €272 per month. An average earner stands to save up to €600 a year.
To finance those cuts, the coalition is sharpening the so-called rich tax. The top income-tax rate climbs to 45 percent on annual earnings above €250,000 and to 47 percent above €280,000. The flat tax on minijobs — small part-time positions — doubles from 2 to 5 percent. At the same time, the tax deduction for household craft services is trimmed from 20 to 15 percent.
Sick Leave: Day-One Doctor’s Note Returns, Phone Option Axed
A flashpoint in the package is the new rule requiring a medical certificate from the first day of absence. Until now, the mandate only kicked in on day four unless a contract specified otherwise. From 2027, the first day becomes the statutory default, though companies and employees can still negotiate different arrangements.
The telephone sick note, introduced during the pandemic and later made permanent, is abolished. Anyone who falls ill must visit a practice in person or use a video consultation. A novelty is the partial sick note: physicians will be able to certify incapacity in increments of 25, 50, or 75 percent.
The National Association of Statutory Health Insurance Physicians called the plan counterproductive, warning it would overload practices unnecessarily. For context, the DAK health-insurer’s statistics recorded an average sick-leave rate of 19.5 days per employee in 2025.
Fixed-Term Contracts: Up to Four Years Without a Reason
Companies will be permitted to offer fixed-term contracts for up to 48 months without providing a specific justification. Within that four-year window, up to six renewals are allowed. The rule applies to new hires until the end of 2030.
Dismissal protection is relaxed for top earners: anyone earning more than €177,000 gross annually — roughly €15,000 per month — can be let go more easily in exchange for a severance payment. The coalition says it expects this to increase labour mobility for executives.
Pensions: Higher Retirement Age, New Capital Pillar
The government is implementing the recommendations of the pension commission. The standard retirement age will rise beyond 67. The penalty-free pension after 45 contribution years is eliminated. In its place, a capital-funded pension component is introduced, and the contribution rate climbs by two percentage points.
Reactions: Employers Cheer, Unions Fume
Employers’ association president Rainer Dulger praised the decisions as a long-overdue shift in direction. The DIHK chamber of industry and commerce welcomed the cut in red tape but criticised the higher taxes on high earners.
Unions took a starkly different view. IG Metall and Verdi called the package a vote of no confidence in the workforce, denouncing what they termed “fixed-term madness” and the tightened sick-leave rules. The Social Association SoVD complained that large assets remained untouched.
Also drawing criticism is a new federal ban on the socialisation of housing — a response to grassroots initiatives in several states. Delayed for now are reforms of the Working Hours Act and electoral law.
