German coalition agrees on sweeping reform package in key breakthrough

Under fire amid surge in far right, German chancellor unveils tax and pension reform package in bid to revive economy.German Chancellor Friedrich Merz’s ruling coalition has unveiled a sweeping package of tax, labour and pension reforms aimed at reviving Europe’s largest economy and countering a surge by the far right.The “Programme for Revival and Employment” announced on Thursday includes about 10 billion euros ($11.4bn) in annual income tax relief targeted at lower and middle-income earners, taking effect from January 1, 2027.Recommended Stories list of 3 itemslist 1 of 3Top European leaders vow ‘strong’ support for Ukraine ahead of NATO summitlist 2 of 3Germany’s Merz says EU to initiate integration of Western Balkanslist 3 of 3US deepens European uncertainty with deployment of 5,000 troops to Polandend of listThe 34 reform measures also include an overhaul of the creaking pension system, tougher rules for employees’ sick leave and a reduction of the country’s stifling bureaucracy.The tax relief is to be financed primarily by restructuring the surcharge on top incomes.“The highest earners in this country will therefore take on a larger share” of the tax burden, said Finance Minister and Vice Chancellor Lars Klingbeil of the centre-left SPD. “That is fair, so that our country can move forward.”Trailing the far-right Germany" class="entity-link entity-organization" data-entity-id="3089" data-entity-type="organization">Alternative for Germany (AfD) in national polls ahead of critical eastern state elections this September, Merz’s centre-right CDU and their SPD coalition partners faced intense pressure to overcome months of internal deadlock.“We are doing everything we can to overcome our country’s structural weakness when it comes to economic growth,” Merz told a Berlin news conference, admitting the government is “under pressure from many sides”.He said the measures aim to cut red tape and protect the welfare state while easing the burden on companies hit hard by high energy costs, intense Chinese competition and US tariff pressures.