Germany’s Coalition Bargain: Tax Relief for Millions Tied to Overhaul of Minijobs and Dismissal Rules

As the governing parties gather in Berlin for a two-day coalition committee starting Tuesday, a sprawling set of labour-market proposals is on the table. The package touches on flexible working hours, changes to dismissal protection, and the future of Germany’s 6.8 million marginal employees — the so-called Minijobbers. What makes this round different from previous talks is the financial glue holding it together: a planned tax reform that Finance Minister Lars Klingbeil wants to take effect on 1 January 2027.

Klingbeil has presented two competing models. The first would cut taxes by 28 billion euros, financed by higher inheritance tax and new levies on incomes above 100,000 euros. The second delivers a 17-billion-euro relief without any offsetting revenue. Neither model has been approved, and coalition insiders say the final figure will depend on what the SPD can extract from the CDU in return for labour-market concessions.

The CDU’s business wing is pushing hardest on one demand: allowing top earners to swap dismissal protection for a contractual severance payment. The proposal targets employees whose monthly gross salary exceeds the contribution assessment ceiling — set at 8,450 euros for 2026. Many observers see the move as negotiating leverage rather than a serious reform goal. The federal government shows little appetite for broadly rolling back job security. The SPD, according to party sources, will only discuss minimal adjustments for executive-level staff. In exchange, it may secure concessions on higher taxes for high-income households.

Working hours are another flashpoint. The CDU’s economic council and parts of the Union party want to replace the current daily maximum with a weekly cap, allowing employers to spread hours unevenly across the week. A draft from the labour ministry currently permits such flexibility only if a collective bargaining agreement is in place. That draft has drawn fierce opposition from a group of SPD MPs around Jan Dieren and Annika Klose. They warn that any loosening comes at workers’ expense and reject longer shifts, sick-day waiting periods, and cuts to strike rights. Instead, they demand higher wealth and income taxes to relieve lower earners.

The fiercest battle, however, may be over the future of Minijobs. The state pension commission has recommended scrapping the special status of these low-hour, low-wage positions almost entirely. Under its plan, roughly 80 percent of Minijobbers — those who currently opt out of compulsory pension insurance — would be required to contribute, with exceptions only for school pupils.

Business groups have reacted sharply. The retail association Handelsverband and the hotel-and-restaurant federation Dehoga warn of massive job losses and a surge in undeclared work. The customs officers’ union also sees risks to the rule of law. Proponents point to old-age poverty: today, approximately 80 percent of Minijobbers exempt themselves from pension obligations, storing up future social costs.

Former Hesse premier Roland Koch is urging the CDU to compromise on what Germans call the “rich tax” — an extra levy on top incomes. A one-percentage-point increase, he argues, could raise around one billion euros annually and serve as a bargaining chip to push through labour-market reforms and subsidy cuts. That idea may become the centre of a deal.

Separate from these negotiations, a new basic income-support system takes effect on 1 July. Labour Minister Bas has said the reform aims to strengthen accountability and personal responsibility while cracking down on abuse of social benefits.

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