Merz Announces German Pension, Tax and Labour Reforms to Boost Economy
Overview of Merz's Economic Reform Package
BERLIN, July 2 (Reuters) - German Chancellor Friedrich Merz outlined a package of pension, tax and labour reforms on Thursday, along with measures to cut red tape that he said would boost growth, jobs and competitiveness while maintaining social welfare protections.
Merz said the government aimed to pass the main elements of the 34-point package through parliament by the end of the year.
Pension Reforms
PENSIONS:
Capital Markets-Based Pension Element
Implement recommendations of the pension commission that would introduce an additional capital markets-based element to the state pension system, along with a gradual increase in the retirement age over coming decades.
Tax Relief for Households
TAX RELIEF FOR HOUSEHOLDS:
Income Tax Relief Measures
Income tax relief for households of more than €600 ($685) for a working family with two children through higher allowances and an easing of progression for middle incomes. The measures would bring an estimated relief of €10 billion annually.
Financing the Tax Relief
The measures would be financed in part by raising the top rate of tax to 47% from 45% for the highest earners with an annual taxable income of €280,000 or more.
Labour Market Reforms
LABOUR MARKET REFORMS
Sick Leave Policy Changes
In an effort to reduce days lost through sick leave, workers would not be able to call in sick by telephone but would require medical certificates from day one.
Fixed-Term Contracts and Dismissal Arrangements
Companies would be offered greater scope to offer fixed-term contracts for up to 48 months for new hires through to 2030. They would also be offered greater freedom for dismissal-with-compensation arrangements for very high earners.
Industry and Technology Initiatives
INDUSTRY AND TECHNOLOGY
Support for Key Sectors
Measures to support key sectors including automotive, chemicals and pharmaceuticals, clean technology, machinery, batteries, semiconductors, artificial intelligence.
Deutschlandfonds Investment Expansion
The Deutschlandfonds investment funding framework would be expanded into a strategic investment vehicle focused on resilience, energy and raw materials.
Welfare System and Enforcement
CRACKDOWN ON WELFARE ABUSE:
Anti-Fraud Measures
Measures against benefits fraud to be tightened with more data sharing among authorities and improved enforcement.
Energy and Infrastructure Development
ENERGY AND INFRASTRUCTURE
Electricity Grid Expansion
Expansion of the electricity distribution-grid to be accelerated with the aim of cutting network project implementation times by half. Industry to get clearer guarantees about grid connection timelines.
Trade Policy Adjustments
TRADE
Strengthening EU Trade Measures
Strengthen EU anti-dumping and anti-subsidy measures and EU preference rules. Technology-transfer requirements to be considered in certain strategic sectors involving non-European investments.
Housing Market Reforms
HOUSING
Affordable Housing Initiatives
Create a federal housing company to build affordable housing and ease requirements on property lending to stimulate mortgage financing. Pass legislation to prevent conversion to public control of private rental housing by regional authorities.
Deregulation and Bureaucracy Reduction
DEREGULATION AND BUREAUCRACY CUTTING MEASURES
Reducing Compliance Burdens
Cut in reporting and documentation requirements and cut in corporate compliance burdens, including limiting supply chain due diligence obligations to very large companies.
Automatic Approvals and Staffing Reductions
The measures would include automatic approval of applications after four months unless authorities intervene and a target 8% reduction in staffing across much of the federal administration.
Exchange Rate Information
($1 = 0.8757 euros)
Reporting Credits
(Reporting by James Mackenzie, editing by Kirsti Knolle and Jon Boyle)
