Germany announces tax cuts and labor reform

What are the main changes to income tax?

The plan foresees a relief of 10 billion euros per year in income tax from 2027, especially benefiting those with low and medium incomes. To balance the books, the government will charge more from those who are very rich: the maximum rate for the highest incomes in the country will rise from 45% to 47%.

What changes for workers who need a medical certificate?

The rules will become stricter. The government wants to put an end to certificates obtained by telephone, a facility created during the pandemic. Furthermore, companies will be able to require the presentation of the document on the first day of sick leave, eliminating the current deadline that allowed for up to three days off before needing to prove the illness.

How does the government intend to reduce bureaucracy for companies?

The idea is to simplify forms and speed up investments. One of the most impactful new features is automatic approval: if a public body does not respond to a company’s request within four months, the request will be considered approved. This provides more agility and predictability for those who wish to invest in the country.

What is predicted about the retirement age for Germans?

The system will undergo reform to deal with the aging population. From 2031, the minimum retirement age will be linked to life expectancy. In practice, if people live longer, they will need to work more. Estimates suggest that the limit, which is currently 67 years old, could reach close to 70 in the coming decades.

What was the reaction of the unions and the production sector?

There was division. While big banks and insurers praised the focus on competitiveness, unions reacted badly. Workers’ representatives claim that the new rules for medical certificates create a culture of distrust and that the greater ease of dismissing high-paid employees attacks hard-earned rights.