Germany Scraps Phone Sick Notes and Doubles Fixed-Term Contracts in Bid to Revive Stagnant Economy

Employers will no longer have to accept a phone call as proof of illness from 1 January 2027, under a 34-point economic rescue plan agreed by Germany’s ruling coalition. The measure – ending the pandemic-era rule that allowed workers to self-certify an absence by telephone – is intended to curb rising sickness rates. But it has already drawn sharp criticism from the CDU’s labour wing, the SPD’s patient ombudsman, and the German Institute for Economic Research (DIW), which say there is no evidence that phone sick notes drive up absenteeism.

The same package, which the coalition bills as a cure for years of stagnation, also makes it far easier for companies to hire workers on temporary contracts. The maximum duration for fixed-term employment without a cause will double from 24 to 48 months, with up to six renewals allowed until the end of 2030. From 1 January 2027, the written form requirement for such contracts will be dropped entirely. For high earners, the government is preparing enhanced severance arrangements intended to make dismissal protection more legally watertight.

Taxpayers are promised relief worth around €10 billion a year from the start of 2027, delivered through higher basic and child allowances. A family with two children earning €60,000 gross annually should see an extra €600 a year from 2028, as child benefit rises to €272. To help fund these giveaways, the coalition is adjusting the top income tax rate: from an income of €250,000 the rate will be 45 percent, rising to 47 percent at €280,000. The German Economic Institute (IW) calculates that this will generate additional revenue of roughly €3 billion, most of it from companies.

Bureaucracy is also in the crosshairs. The government has decided on blanket waivers of reporting obligations for businesses. From 31 December 2027, a “deemed approval” rule applies: if authorities fail to respond on time, an application is automatically considered granted. Within federal agencies, staffing is to be cut by 8 percent. On pensions, the coalition will follow the recommendations of the Old-Age Security Commission, raising the retirement age to 67.5 by 2041 and introducing a capital-funded supplementary pension that covers the self-employed and politicians. In housing, a new state-owned company is planned, while expropriation of rental property is to be banned.

Leading economic institutes – including Ifo, DIW, ZEW, and IfW – have expressed disappointment with the package. They say it lacks a genuine investment push and criticises the burden on small and medium-sized enterprises from the higher top tax rate. Industry associations BDI and VDMA complain that operating costs have not been cut enough and that the growth impulses are too weak.

Chancellor Friedrich Merz has defended the agreements, setting a target of above 1 percent economic growth for 2027. SPD figures have warned against jeopardising the compromises through renegotiation. The draft 2027 budget, which requires each ministry to cut spending by 1 percent, will be discussed by the cabinet on Monday.

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