Germany’s CDU/CSU and SPD coalition announces sweeping reforms targeting taxes, social benefits, and labor policies.

The coalition led by Chancellor Friedrich Merz (CDU) has agreed on a comprehensive reform package aimed at modernizing Germany’s tax system, combating social benefit fraud, and addressing labor market challenges. Key measures include a planned income tax reform starting January 2027, which will provide relief of approximately €10 billion annually, focusing on low and middle-income earners. Adjustments include raising the basic tax-free allowance, increasing child benefits, and flattening tax progression rates.

Additional measures include changes to the ‘wealth tax,’ reductions in the tax-deductible portion of handyman services, and increased tax rates for mini-jobs. The government also plans to intensify efforts against social benefit fraud, with an action plan expected in July. Labor Minister Bärbel Bas (SPD) emphasized the importance of data-sharing between ministries to tackle abuse effectively. These reforms aim to balance fiscal relief with targeted counter-financing measures.