Germany's Biggest Reform Package in Years: 34 Measures on Taxes, Sick Leave, and Pensions

The Package at a Glance

On July 2, 2026, the coalition partners CDU/CSU and SPD under Chancellor Friedrich Merz agreed on the "Program for Recovery and Employment" – 34 individual reform measures regarded as one of the most sweeping economic policy changes in recent German history.

AI-generated

The backdrop is economic stagnation and the rise of the far right. As Europe's largest economy, Germany is under significant economic pressure – and the government is responding with a broad reform approach that directly affects three major areas of life for millions of people.

The package targets three areas that virtually every household will feel directly: income tax, sick leave, and pensions.

---

Tax Relief: Who Benefits from 2027?

Perhaps the most immediately tangible change is an annual tax relief of around €10 billion – explicitly targeted at low and middle incomes. The measures take effect from January 1, 2027.

AI-generated

The income tax brackets change as follows:

Key message: Those earning less or average wages will benefit. Very high incomes will be taxed with steeper graduated rates through the new 45% and 47% brackets at the top.

---

Sick Leave: Doctor's Note from Day One

One of the most immediately debated new rules concerns telephone sick leave, which was introduced during the COVID-19 pandemic. This is being abolished.

Going forward:

• A doctor's note is required from the first day of illness
• Previously, a medical certificate was only required from the fourth day
• The pandemic-era simplification will be fully reversed

Employees will therefore need to see a doctor earlier if they wish to stay home from work. This is expected to pose new organizational challenges for both medical practices and workers alike.

---

Pensions: Life Expectancy as the New Benchmark

In the area of retirement provision, the federal government is implementing all 33 recommendations of the pension commission – in full. The relevant legislation is scheduled to be introduced still in 2026.

The central structural change:

• The retirement age will be gradually linked to rising life expectancy after 2031
• This means a step-by-step increase beyond the existing statutory cap of 67 years
• Long-term scenarios project a limit of up to 70 years well into the 2090s

Anyone under 40 today should recalculate their long-term private pension planning – the statutory retirement age will very likely continue to rise.

---

What Does This Mean for Everyday Life?

The reform package is not abstract legislation – it concretely changes when people retire, how they call in sick, and how much take-home pay they receive. While the tax reliefs only take effect in 2027, the pension reform is set to be legislatively anchored still in 2026.

Germany is sending a clear signal: the government is betting on structural change rather than short-term economic stimulus – with far-reaching consequences for employees, the self-employed, and everyone thinking ahead.