Chancellor Friedrich Merz Unveils 34-Point Economic Reform Package

German Chancellor Friedrich Merz and his coalition partners from the Christian Democratic Union and Social Democratic Party unveiled the Programme for Revival and Employment on July 2, 2026. The 34-point reform package aims to boost productivity and national competitiveness while countering the rise of the far-right Alternative for Germany ahead of eastern German elections in September.

Key economic measures include 10 billion euros in annual income tax relief for low- and middle-income families. This is funded by raising the top tax rate to 47% for individuals earning over 280,000 euros. The government also announced a pension system overhaul that links the retirement age to life expectancy, potentially pushing it beyond 67, and the introduction of capital market elements to state pensions.

Labor reforms introduce stricter sick leave rules, eliminating the three-day grace period and telephone-based certificates by requiring a doctor's note from the first day of absence. The package further reduces bureaucracy by lowering data protection to the European minimum and cutting federal ministry staffing by 8%. Additionally, Finance Minister Lars Klingbeil announced a tougher stance toward China to protect domestic firms.

Reactions were sharply divided. While coalition leaders described the measures as a necessary compromise to get Germany back on track, Alice Weidel of the Alternative for Germany dismissed them as minimal compromises and left-wing redistribution. Joachim Rock of the Welfare Association warned that cuts to housing support would increase homelessness risks, and trade unions condemned the labor changes as attacks on workers' rights.