Following the “autumn of reforms” of 2025, which had largely disappointed observers, and an economic growth hovering around zero for the third consecutive year, the German government in 2026 unveils a summer legislative package aimed at freeing the economy from the constraints weighing on it.
Reforms to pensions, income tax, labor law, unemployment insurance, investment policy, reduction of bureaucracy, and digitization: the federal government, which had nearly reached a terminal crisis in the spring, is staging its activity and its agreement on various economic measures across a wide range of fields.
Low and middle incomes are expected to benefit from several measures reducing the burden of income tax, with various tax exemptions in favor of families. By contrast, high incomes will be more heavily taxed. A “tax on the rich” (in reality an additional income tax bracket) will be introduced for taxable incomes above €280,000. Conversely, certain measures disadvantage artisans whose work will be less deductible from their clients’ taxes, as well as those with “mini-jobs” whose taxation will rise.
The package of measures also provides for changes in labor law, notably the extension of the legal duration of fixed-term contracts from two years to four years. Among the most debated measures of this reform package, the conditions for obtaining sick leave will be tightened significantly. An employee will now have to present a medical certificate from the first day of incapacity (instead of after three days currently) and will no longer be able to declare sickness by phone. Chancellor Merz has repeatedly deplored the high number of sick days in Germany. The agreement also provides for stronger action against social fraud. With regard to company or sector-wide agreements, the government aims to allow less stringent working-time arrangements for companies operating in the artificial intelligence sector.
In the line with the coalition agreement, the government also announces a significant reduction of bureaucracy, with a massive removal of legal or regulatory obligations weighing on businesses. However, the German bill sometimes adopts protectionist tones, notably when it comes to defending key industries. The German government emphasizes these measures in the name of economic and digital sovereignty.
Echoing the CDU/CSU parliamentary group’s project presented in the spring, which called for radical simplification of European legislation, the bill also provides for a drastic removal of mandatory corporate obligations, with exceptions only in a few areas related to human and social rights. Finally, the government announces an 8% reduction in civil service headcount, made possible by digitization.
This package of measures is clearly liberal and fits a pro-growth policy. As Friedrich Merz repeats in his speeches, reviving the economy is the government’s first priority as Germany enters a third consecutive year of stagnation. If the SPD can frame the fiscal aspect of this reform as a social measure of redistribution in favor of the working and middle classes, the CDU/CSU presents it as a necessary shock of simplification to restart the economy.
In the context of autumn parliamentary elections in two eastern Länder (Saxony-Anhalt and Mecklenburg-Western Pomerania), where the far-right Alternative for Germany (AfD) is close to obtaining an absolute majority of seats, the federal government can no longer afford to project an image of an unable-to-act power.
A Program for Growth and Jobs
We live in an era of change. Many citizens worry about the future, their jobs, and the country’s security. The technological revolution and demographic shift accelerate the process. Wars and the deterioration of world trade relationships increase external pressure. Germany can lean on its strengths but cannot cling to the past. We must now identify and seize opportunities with determination and turn to the future. The coalition government, composed of the CDU/CSU and the SPD, will pave the way for this. We aim to generate growth, secure employment, and strengthen cohesion in Germany. That is why the coalition has agreed on 34 measures in a comprehensive and fair package. We are reducing bureaucratic constraints for citizens as well as for businesses, we strengthen competitiveness, and we act with respect for social balance.
We want our children to share in prosperity and progress, and we want older generations to enjoy the fruits of their labor. This is a matter of justice. Therefore, safeguarding our health and retirement systems is at the heart of our reform efforts.
Our system is social and encourages participation and codetermination, but it also requires commitment and personal responsibility. We leave no one behind, but we want to move forward.
Pensions
1 — The Pension Insurance Commission has dedicated itself with great expertise to one of the most complex reform projects of our time and has accomplished outstanding work. The commission’s report opens prospects for our social model, for Germany’s competitiveness, but also for society as a whole. We will implement the recommendations in a legislative package. This package will be adopted by the Bundestag by the end of 2026.
Taxation
2 — The coalition eases the tax burden on citizens starting on 1 January 2027 in terms of income tax. The relief will be achieved through the increase of the basic allowance (
From 2028 onward, a working family with two children and a taxable income of €60,000 will see its tax burden reduced by €600 per year compared with today. The total scale of tax relief amounts to around €10 billion per year.
The revenue losses for the Länder and municipalities that exceed the constitutional uplift of the basic and child allowances will be compensated by the federal government, after deducting the additional revenues for the Länder and municipalities arising from the other tax measures.
The financing of these measures is achieved by the following change to the ‘rich tax’ (Reichensteuer): 45% on taxable income starting at €250,000 and 47% starting at €280,000.
The flat-rate tax for “mini-jobs” will be raised from 2% to 5%. In 2027 and 2028, a profit rebound of €500 million per year will be returned to the Kreditanstalt für Wiederaufbau (KfW). The tax-deductibility of artisan work will be reduced from 20% to 15% (i.e., from a maximum of €1,200 to €900 per year).
Labor Market
3 — Our goal is to stabilize unemployment insurance contributions and to permanently safeguard the ability of the Federal Employment Agency (Bundesagentur für Arbeit, BfA) to act.
4 — With regard to the Sunday and holiday work allowance that benefits from favorable tax treatment, the ceilings provided in §3b of the German Income Tax Act (Einkommenssteuergesetz, EStG) will be raised on 1 January 2027 for an hourly wage up to €75; concurrently, the tax-exempt allowance will be fully exempt from contributions within a collective bargaining agreement.
5 — For employees hired up to 31 December 2030, a fixed-term contract without objective justification will be possible for a maximum of 48 months, renewable up to six times. In this regard, a new initial hire with the same employer will also be possible.
6 — For high earners, we will introduce, from 1 January 2027, a provision analogous to that applicable to risk-takers in the financial sector, which will allow, for annual incomes above 1.75 times the statutory retirement insurance ceiling (GRV), the termination of the employment contract with a severance option.
7 — To make the rapid transition from one job to another more attractive, severance payments will receive favorable tax treatment when the employee quickly takes up a new activity. The tax advantage is greatest when the new job is taken up quickly.
8 — The Federal Employment Agency (BfA) plays a central role in career transitions during periods of transformation. Through lifelong career guidance, labor-market transition platforms as a regulatory instrument under Title 3 of the Social Code (SGB III) and corresponding “job-to-job” training, unemployment is avoided and the transition from one job to another is facilitated. With new tools—such as testing a job-perspective and strengthening the promotion of continuing education within “transition companies”—the Federal Employment Agency can further support the transformation and assist those concerned in a targeted manner.
9 — We are developing a “Second Chance” program aimed at substantially reducing the number of young people without a final school diploma and those without vocational training. In a second step, we intend to reform the Education and Participation Package (BuT) so that no young person remains without a diploma.
10 — Other proposals from the Commission on the Reform of the Welfare State (KSR) will be implemented as soon as possible, as the Commission proposed. This also includes the model relating to “benefit withdrawal rates” to improve employment incentives.
11 — Sick leave by phone is eliminated and the fraudulent issuing of a certificate of incapacity to work, within the meaning of § 278 of the Criminal Code (StGB), is sanctioned more severely. We introduce the obligation to present a certificate of incapacity from the first day of illness as well as a “guaranteed appointment with a specialist” as part of the implementation of the general practitioner law. In addition, we set up a law-regulated heart-attack prevention program.
Growth and Fairness
12 — Strengthening future technologies: we will resolutely support future-oriented sectors, notably the automotive sector, the chemical and pharmaceutical industries, clean tech, the circular economy, mechanical engineering, battery cell and semiconductor production, and the entire field of artificial intelligence.
To this end, we will promote “Made in Germany” innovations, such as autonomous driving, for example by simplifying vehicle registration rules and establishing pilot regions for autonomous driving. Data center projects must be of interest to local municipalities. Because of the corporate tax system, these municipalities hardly benefit from the siting of a data center. It is therefore necessary to establish a regulation that defines the criteria for distributing the tax base for data centers as an alternative to the standard case.
13 — The Federal Ministry of Labor and Social Affairs (BMAS) and the Federal Ministry of the Interior (BMI) will present, from July 2026, an action plan to combat abuse of social benefits, including legislative and regulatory measures to be implemented by the end of 2026. These measures provide for as comprehensive data exchange as possible among all competent authorities (notably social services, foreigner’s offices, civil registries, tax services, security and planning services, as well as health and long-term care insurance funds), push notifications from the Central Foreigners Register to the authorities responsible for benefits when grounds exist to restrict benefits, as well as data consultations with the Federal Central Tax Office for civil registry declarations; a shift to the notion of “legal stay” rather than “habitual residence” for social benefits after five years under §7(1) of Title II of the Social Code (SGB II) and §23(3) of Title XII of the Social Code (SGB XII); an exclusion of the right to benefits under Titles II and XII of the Social Code (SGB II/XII) for persons sought by arrest warrants; an obligation for energy suppliers to inform benefit authorities about other places of residence and client relations; and amendments to the Freedom of Movement Act (FreizügG) and EU law.
14 — Modern data protection in service of growth: we simplify national data protection regulations and systematically exploit all margins offered by the General Data Protection Regulation (GDPR). At the European level, we want non-commercial activities (e.g., within associations), small and medium-sized enterprises, and low-risk data processing (e.g., artisans’ client lists) to be excluded from the GDPR’s scope. To ensure greater legal clarity and uniform interpretation, a Data Code will be created; as a coherent regulatory framework, it will harmonize and simplify data law as appropriate, while guaranteeing data protection and promoting its use. Data protection procedures will be considerably lightened, and control structures simplified and consolidated (notably by concentrating powers with the Federal Commissioner for Data Protection and Freedom of Information, BfDI). We will enshrine the Data Protection Conference (Datenschutzkonferenz, DSK) in law to develop common standards. For small and medium-sized enterprises, we want to reduce the number of data protection officers within companies.
15 — Germany Fund: the coalition will develop the Germany Fund into a tool for strategic participation and strengthen it by adding a resilience dimension. To this end, the aim is to mobilize as much private capital as possible. It will, among other things, boost investments in raw material supply and energy infrastructure. The Germany Fund will thus become a pillar of our economic security policy. Through systematic participations and strategic objectives, startups, small and medium-sized enterprises, and municipal enterprises should also benefit.
16 — Acceleration of planning for distribution networks: progress and financial viability of the energy transition depend decisively on network development. Renewable energies and storage systems, industrial facilities, data centers, charging infrastructure, heat pumps: all must be connected to the grid. Accelerating the development of distribution networks is therefore crucial. By the end of the year, we will launch a package of measures to accelerate grid expansion, advance modernization and digitization, and improve financing options. The goal is to halve project lead times. We want to better utilize existing networks and, thanks to the European “EU Grids Package,” further accelerate permit procedures, ease and speed up plan approvals, streamline environmental impact assessment procedures, and create the possibility of setting clear deadlines.
We also want to accelerate the digitization of networks. We refine the targets for the deployment of smart meters: by the end of 2030, deployment must be completed at over 90% for all measuring points concerned. For customers not covered by this mandatory deployment, we will implement a low-cost “Smart Meter Light” that will allow them to optimize their electricity bill in an economical and cyber-secure manner. All important data relating to network expansion, load, and connection capacities will be made available in a standardized manner on a central platform. We want to strengthen cooperation between network operators, for example by introducing incentives for them to jointly develop software under the “one for all” principle and make it available nationwide. We offer a connection guarantee to industrial companies: they will be given a precise timeline before their site is connected to the grid with the required capacity.
17 — External trade and trade defense: we are developing a new strategy for external trade that, in close collaboration with our European partners, strengthens the common trade policy and adapts to a multipolar world.
Europe benefits from an open and fair global trade. That is why the federal government is committed to concluding new trade and investment agreements and to harmonizing existing ones. Diversifying our trade relations also strengthens our economic security.
To this end, it is necessary to establish strong protection against unfair competition, notably through faster, sector-wide enforcement of anti-dumping and anti-subsidy measures at the European level. It is essential to effectively prevent any circumvention of these protection measures and to address discrepancies and geoeconomic imbalances. To guarantee economic sovereignty, we deem it necessary to impose, on a case-by-case basis, technology transfer obligations for non-European investments from certain third countries in defined strategic sectors and critical infrastructures.
To strengthen demand and European resilience in this period of geopolitical instability, the federal government also commits to the rapid adoption of the Industrial Accelerator Act in an adapted form. We support, in defined strategic areas, the introduction of European preference rules in state aid. In strategic sectors, guaranteed public procurement (the state as a key client) and investment protection measures should have a supportive effect, for example to strengthen our digital sovereignty.
Housing Construction
18 — A Affordable Housing Company (Wohnungsbaugesellschaft für bezahlbares Wohnen, WBG) will be created. The aim is to build more housing in the affordable price segment where the market does not provide enough affordable homes in the long term. The WBG should support social housing construction as well as the industrial development of mass housing construction, and intervene particularly in regions where there is an evident housing shortage.
We will also abolish, as of 1 January 2027, the additional national equity reserves for real estate loans, thereby freeing up substantial financial resources for housing construction financing by German banks.
To avoid jeopardizing private housing construction, a federal law will provide that the nationalization of private rental housing parks through state-level socialization laws will no longer be possible.
20 — Collective Bargaining, and AI Co-determination
20 — We will ask the signatory parties of collective agreements in sectors hard hit by the crisis to propose to the federal government, within sectoral dialogue by mid-October 2026, concrete measures to strengthen the competitiveness and resilience of their respective sectors. This applies in particular to the automotive and chemical industries, as well as to steel and mechanical engineering.
20 — Exceptions to legal provisions, social partners, and codetermination in the AI domain: we will ask the signatory parties to propose, within a bilateral dialogue by mid-October 2026, concrete regulatory areas in which derogations from existing laws—e.g., in labor law (notably regarding fixed-term contracts for objective reasons or health and safety) or corporate law (e.g., reporting or due diligence obligations)—could be adopted by agreements between social partners.
To help companies implement AI in their everyday practice and safeguard jobs amid the digital transformation, we want to ensure that software and its updates, as well as upgrades to technical equipment, can be introduced more easily and more rapidly, in accordance with the workers’ co-determination rights. Therefore we will ask social partners to also develop proposals to facilitate cooperation in this area through appropriate provisions, notably in the field of work organization law.
21 — The possibility of circumventing German co-determination law through the so-called “Reserve European Companies” (Vorrat-SE) will be ended. In the context of discussions on introducing a new form of company at EU level (the 28th regime), the federal government is firmly committed to ensuring that co-determination protections in companies are not called into question.
22 — Local employment agencies will be required to use IT interfaces and to exchange data.
23 — In this period of rising unemployment, we will limit, from 1 January 2027, the so-called “Western Balkans” immigration quota to 25,000 people per year, as provided by the coalition agreement.
24 — The extension of Sunday opening hours for bakeries, pastry shops, and libraries, agreed in the coalition agreement, will take effect on 1 January 2027.
Reducing Bureaucracy
25 — Elimination of declaration and documentation obligations: we will pass a burden-reduction law that will generally remove legal declaration obligations to public authorities. Only obligations whose necessity is explicitly justified by the relevant ministry under the Declaration Burden Reduction law (reversal of the burden of proof) or those designated as remaining applicable in the regulations of the competent federal ministry will be retained. The law provides for the corresponding regulatory authorization.
According to a 2024 IFO Institute study for the Munich Chamber of Commerce and Industry, bureaucracy costs Germany up to €146 billion per year in foregone returns.
For all future legislation, new declaration obligations should in principle be avoided (“declaration obligation brake”). Ministries will review all documentation obligations not covered by the European Union or the Basic Law, with the aim of eliminating at least one such obligation within 12 months. We will not, however, lower standards in the areas of human rights, civil rights, consumer rights, workers’ rights or anti-fraud measures.
26 — Abolition of the obligation to designate workers’ representatives within companies: once a certain protection level is reached, the duties of company delegates whose designation does not rely on EU requirements will be removed. Responsibility for compliance with substantive requirements will fall more on the companies themselves, which will be met with strict penalties in case of violations.
27 — Extension of the presumption of authorization: in the Federal Administrative Procedures Act, the authorization presumption is established as the general rule. Applications are automatically deemed approved four months after the complete file is received, unless the competent authority indicates a special need for review. Exceptions must be justified separately in sectoral laws. Where appropriate, the authorization presumption is combined with a presumption of file conformity in favor of applicants, notably in renewal cases. At the same time, we invite the Länder to revise their own administrative procedures laws as well. Full entry into force is planned for 31 December 2027.
28 — We want to relieve taxpayers of unnecessary charges and simplify filing the tax return. To this end, the Federal and Länder finance ministers are engaging in intensive exchanges and developing joint proposals. On this basis, by autumn 2026 the federal government will bundle, in a Tax Simplification Act, proposals to simplify taxation, improve the optional model, and accelerate procedures. Initially, the coalition will implement a digitally prefilled tax return and require tax authorities to assign a tax identification number to companies within a maximum of four weeks. Furthermore, to simplify and automate processes, as well as to better prevent errors and curb abuse, the tax identification number can in the future be used and processed without restriction by social security agencies. We will implement the necessary legislative change for this use by 1 January 2027.
29 — We will implement the European directive on supply chains (Corporate Sustainability Due Diligence, CSDD) as is. Legally, in fall 2026, the scope will be limited to companies with at least 5,000 employees and with worldwide net annual turnover exceeding €1.5 billion; due diligence obligations will be defined by risk, and obligations of information and verification, particularly toward smaller and indirect suppliers, will rely on information available at reasonable cost.
The level of protection of human rights will be secured in particular by the new National Action Plan “Economy and Human Rights” 2026-2031, ambitious and designed to facilitate business. Its implementation will fall under the responsibility of the Federal Ministry of Labour and Social Affairs (BMAS).
30 — Risk-based supervision: we will reduce the burden on businesses, administration, and citizens by significantly reducing declaration obligations. To this end, we will also implement a systematic risk-based approach and simplify state controls by the federal administration (random checks, minimum thresholds, flat-rate charges). In return, violations will be punished more severely than before (commercial law, fiscal criminal law).
31 — It is necessary to increase the productivity of digitization across all administrations. In this regard, the target of an overall 8% reduction in staff applies in principle to all federal administrations and to the indirect federal administration. This 8% reduction will only have very limited exceptions, for example for critical infrastructure and security authorities. However, even in these areas, savings must come from administrative costs; mission execution must not be affected.
32 — This requirement applies to the indirect federal administration to the extent that the federal government exerts influence on the budget of the authority or institution concerned or allocates budgetary funds. The staff reductions should be accompanied by modernization efforts within the federal administration, such as centralization of tasks, easing the laws governing the career paths of federal civil servants, and examining the introduction of a goal-oriented and results-based budgeting system. All authorities under direct federal influence should examine, as part of a mission-critical review, the extent to which they can rely on shared services (e.g., personnel management) and the feasibility of mergers or eliminations of sectoral authorities.
We will continue developing the Information Freedom Act (IFG) while preserving the right of access to official information and in consultation with the Federal Commissioner for Data Protection and Freedom of Information (BfDI), to adapt it to current challenges. We will make this complex law more understandable and transparent for citizens. In the future, we aim to focus access rights on individuals with a legitimate interest who cannot access such information through other regulations. In this framework, we will examine whether to limit the circle of those entitled to information to Germans and European Union citizens residing in Germany. We want to protect our employees against hostility and threats by masking their names. In a context of complex threats, both internal and external, we want to strengthen the resilience of the State and better address the special protection needs of certain areas, such as critical infrastructure, counter-espionage, counter-terrorism, and scientific research. We will adjust the charges under the IFG in accordance with the cost-recovery principle.
33 — Reform of the regulations for installations subject to supervision: the prior administrative authorizations before commissioning and for modifications affecting the safety of supervised installations are now waived. Annual savings for businesses amount to around €4.6 million.
The revision of the obligation to inspect electrical installations prescribed in DGUV Rules 3 and 4: within the framework of self-regulation and thus outside the federal government’s direct competence, the merger of DGUV Rules 3 and 4 is pursued coherently, and in particular the obligation to inspect installations and electrical equipment is revised and simplified. From the federal government’s perspective, this represents an annual relief potential for the economy and administration of about €720 million per year.
Improved data exchange between the federal state, the accident insurance carriers (Unfallsversicherungsträger, UVT), and the Länder: cooperation and data sharing between the federal state, the Länder, and the UVTs are improved. Strengthened supervisory controls (including targeted operations): the BMAS supports regular inter-institutional safety and health inspections.
34 — As foreseen in the coalition agreement, the requirement for written form for fixed-term contracts will be abolished on 1 January 2027.