Germany’s Coalition Walks a Tightrope: Sick-Note Overhaul, Peak Debt, and Dwindling Tax Benefits
06.07.2026 - 02:42:01 | boerse-global.de
The black-red coalition’s 34-measure reform package, passed on 1 July, is already drawing sharp fire from unions, doctors, and economic researchers. The Institute of the German Economy (IW) cast doubt on the promised tax relief, calculating that rising pension contributions could slash a supposed €632 saving to just €311. That example underscores a central tension: the government aims to stabilise the pension level at 48 percent until 2031, but leaves the period beyond open.
Vice-Chancellor and Finance Minister Klingbeil acknowledged that many citizens would feel the reforms as a burden. In an interview on Sunday, he signalled adjustments were still possible. “The legislative process is still at the beginning,” he said, adding that parliament could make changes.
Sick notes required from day one are among the most contentious points. Employees will have to produce a medical certificate from the first day of illness, and the option of a telephone sick note will be scrapped. Klingbeil urged a pragmatic approach: the certificate is mandatory for day one, but need not be physically obtained on that day. He pointed to possible company-level or collective-bargaining solutions. Labour lawyers note that existing contractual rules with a later certificate obligation may continue to apply. Doctors warn that requiring a visit to a practice could lead to longer sick leaves. In 2025 the average number of sick days already rose to between 19.5 and 20 per year.
Fixed-term contracts are being expanded. For hires until the end of 2030, the maximum duration without a reason rises to 48 months with up to six extensions – previously it was 24 months and three extensions. Employer associations welcome the added flexibility. Unions such as DGB, Verdi, and IG Bau criticise the growing insecurity for workers.
Tax relief is not for everyone. The package contains about €10 billion in tax cuts, targeting low and middle incomes. A family earning €60,000 annually could save around €600 a year from 2028. To finance this, the coalition plans to extend the “wealth tax” bracket: the rate would rise to 45 percent on incomes above €250,000 and to 47 percent above €280,000. Yet the IW’s example suggests the net benefit for some earners will be halved.
High earners and dismissal rules see changes from 2027. Those earning roughly €177,450 or more could face simplified redundancy procedures tied to severance payments. Tax advantages on severance pay are designed to encourage quick job changes.
The financial side is enormous. For the core 2027 budget, net new borrowing of €118.7 billion is planned; including all ancillary budgets, total credit may surpass €200 billion. To plug a €34 billion gap, the government will draw €6.8 billion from reserves. From 2028, a stricter austerity course begins, with savings of one percent, later two percent. Klingbeil defended the break from strict budget discipline by citing the geopolitical situation and the economic fallout from the Iran war, which he said would curb growth.
Criticism comes from all sides. Unions and social associations call the package insufficient, even cosmetic. Doctors oppose the tightened sick-note rules, fearing overburdened practices. The government insists the goal is a more flexible labour market. “We are working through the reform backlog that has built up for over 20 years,” runs the line from Berlin.
