German Chancellor Friedrich Merz announced a comprehensive reform package on July 2, 2026, aimed at revitalizing the economy and countering the rise of the far-right party. The initiative, named the Programme for Revival and Employment, includes significant tax relief and pension reforms, set to take effect from January 1, 2027.
Details of the Reform Package
The reform package comprises approximately 10 billion euros (about $11.4 billion) in annual income tax relief primarily benefiting lower and middle-income earners. This will be financed through a restructuring of the surcharge on high incomes, requiring the wealthiest to contribute a larger share of the tax burden, according to Finance Minister Lars Klingbeil of the SPD.
In addition to tax reforms, the coalition will implement new regulations on sick leave and a revamp of the pension system. The measures are designed to alleviate the strain on businesses facing high energy costs and international competition.
Pension System Overhaul
The reform aims to address the aging population's impact on the pension system by committing to all 33 recommendations from the pension commission. Legislative action is expected by the end of the year, with plans to link the retirement age to life expectancy after 2031, which could push it beyond the current limit of 67 years.
