Germany’s New Welfare Crackdown: Doctor’s Note on Day One, Longer Fixed-Term Contracts, and a Tax Shift to High Earners
Published on 07/04/2026 at 19:05 | Redaktion boerse-global.de
Economists from the Ifo, DIW and ZEW have poured cold water on the centre-right coalition’s latest labour-market package, calling parts of it insufficient to drive a genuine turnaround. Yet Chancellor Friedrich Merz, speaking at the CDU state party congress in Düsseldorf, insisted the 34-point programme would deliver growth above one percent by 2027. The mixed reception sets the stage for what is one of the most ambitious work-and-welfare overhauls in years.
At the heart of the plan is a change to sick-leave rules. The telephone-based sick note, long used for short absences, will be scrapped. Employers will be entitled to a medical certificate from the first day of illness – though a same-day visit to the surgery is not mandatory. The measure is part of a broader effort to tighten benefit controls and speed up the detection of unlawful claims. A new data-exchange network between authorities will link benefit receipt to legal residency status, and people subject to an outstanding arrest warrant will generally be excluded from social payments.
Fixed-term employment without a specific reason is also being liberalised. Contracts can now run for up to 48 months and be renewed up to six times; the rule is capped at the end of 2030. For high earners – those above 1.75 times the contribution assessment ceiling – a new severance-payment option will be introduced. The package was hammered out by the coalition committee on 1 July, with the labour and interior ministries now drafting the fine print. The full proposal is expected to be presented formally by the end of this month.
On the tax side, a major income-tax reform is scheduled for 1 January 2027, with annual relief totalling roughly €10 billion, focused on low- and middle-income households. A family with two children and a gross annual income of €60,000 would save more than €600 per year from 2028. Child benefit will increase to €272 per month over the same period. To finance the cuts, the government is raising and tiering the top tax rate: from €250,000 in taxable income the rate climbs to 45 percent; from €280,000 it rises to 47 percent. Smaller contributors will feel the pinch too: the flat-rate tax on minijobs – mini-jobs – goes up from 2 to 5 percent, while the subsidy for tradesmen’s services, the Handwerkerbonus, drops from 20 to 15 percent.
Chancellor’s office chief Frei described the plan as a pathway to sustainable growth. Yet the reaction on the ground is split. Polling suggests the stricter sick-note requirement is drawing criticism, while the tax relief for average earners is broadly welcomed. Further provisions include implementing the recommendations of the pension commission by the end of 2026, introducing a capital-funded component to the state pension, and raising the retirement age beyond 67. The health-care reform is due for its final reading in the Bundestag as early as next week.
Disclaimer regarding our articles: No investment advice, no buy or sell recommendation. Information on prices, companies, and markets is provided without guarantee; changes are possible at any time. Stock market transactions can lead to substantial losses. Our articles are created and reviewed in whole or in part automatically with the support of AI.
