German Chancellor Friedrich Merz and his coalition government unveiled a comprehensive economic reform package in Berlin on Thursday, July 2, 2026, aimed at modernizing the economy, cutting bureaucracy, and restoring international competitiveness.
The package introduces €10 billion ($11.4 billion) in annual income tax relief for lower-income households, financed by raising the top tax rate from 45% to 47% for individuals earning over €280,000 annually.
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The government also reduced its 2026 economic growth forecast to 0.5% and lowered its 2027 projection to 0.9%, while facing domestic political pressure as the conservative bloc trails the far-right Alternative for Germany party in recent opinion polls.
Key Measures and Targets
Chancellor Merz detailed the structural overhauls alongside leaders from the Social Democrats and the Christian Social Union, highlighting a target to reduce federal ministry staff by 8% through increased digitization.
"We are providing relief to employees and businesses by cutting taxes and reducing bureaucracy. We have now completed our first year of reform.
From the very beginning, we set an agenda serving a single goal: We want to get Germany moving again.
It is now clear that this is possible," said Merz.
The Chancellor defended the decision to eliminate telephone-based sick notes and mandate medical certificates from the first day of illness, aiming to curb prolonged workplace absences.
"We want to get Germany back on track," said Merz.
The leadership emphasized that the new labor frameworks are crucial to maintaining the nation's economic edge amid challenging global market conditions.
