From Sick-Note Crackdown to Wealth-Tax Hike: Germany's Grand Coalition Unveils Major Overhaul
Published on 07/05/2026 at 20:55 | Redaktion boerse-global.de
The grand coalition of CDU, CSU and SPD pushed through a wide-ranging reform package in early July, touching on taxes, labour law and social security — with the most heated debate centring on a new rule requiring employees to submit a doctor’s certificate from the very first day they call in sick. The measures are due to take effect in stages from 2027.
Telephone sick notes for common ailments, which were introduced during the pandemic and later kept as an option, will be scrapped entirely. Starting immediately, anyone unable to work must obtain a medical certificate on day one. A YouGov survey found 59 percent of respondents oppose the change.
The reforms, however, go far beyond sick leave. On 2 July the coalition committee agreed a tax-relief package worth roughly €10 billion annually. Families with two children and a monthly gross income of €3,200 per parent will save around €642 per year from 2028. Child benefit is set to rise gradually to €272 per month by then.
To finance the relief, the government is tightening the so-called wealth tax. The rate will climb to 45 percent on annual incomes above €250,000 and to 47 percent above €280,000. Additional levies include a new plastic tax, a 20-percent increase in tobacco and alcohol duties, and a sugar tax announced for 2028.
Criticism has come from both the opposition and social associations. The Institute of the German Economy (IW) notes that roughly 4.58 million taxpayers already pay no income tax because their earnings are too low — meaning they gain nothing from the cuts. Experts also argue that the top tax rate still kicks in too early and that bracket creep has not been fully neutralised.
Beyond the tax changes, the package revises several labour-law provisions:
- Fixed-term contracts: Employers can now use fixed-term contracts without a specific reason for up to 48 months, a temporary rule that will remain in place until 2030.
- Red tape: From January 2027 the written-form requirement for fixed-term contracts will be dropped. Many reporting obligations will be eliminated, and data protection will be reduced to the EU minimum.
- Job changes: Severance payments will receive tax privileges if workers quickly find new employment.
- Sunday and holiday premiums: Tax-free supplements for work on Sundays and public holidays will be allowed for hourly wages up to €75.
Meanwhile, the controversial citizen’s benefit (Bürgergeld) was replaced by a new basic security (Grundsicherung) for jobseekers on 1 July. The standard monthly rate for singles remains €563, but sanctions have been sharpened. Anyone who refuses job applications or walks away from a training measure faces an immediate 30-percent cut for three months. Repeated failure to show up for appointments can lead to a total loss of benefits.
Chancellor Friedrich Merz defended the tougher line at a party convention in Düsseldorf on 4 July, announcing an additional action plan to combat welfare abuse later this month. With proper implementation, he said, Germany faces “very good years ahead.”
On housing, the coalition agreed to ban the nationalisation of private residential companies. A new state-owned housing corporation is to be created to ease market pressure. Decisions on energy policy remain open: the power-plant law and regulations on building modernisation are still stuck in the parliamentary process.
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