Germany’s 34-Point Reform: Flexible Employment, Steep Taxes on Top Incomes, and a Return to Paper Sick Notes

The grand coalition’s 34-point package rewrites labour, tax and social policy in one stroke — but not everyone is convinced it will revive the economy. DIW president Marcel Fratzscher dismissed the bundle as a “symbol package” that lacks a genuine growth impulse.

From January 2027, employers will face a new landscape. The maximum period for fixed-term contracts without a material reason jumps from 24 to 48 months for anyone hired by the end of 2030. Instead of three renewals, six are now permitted. And the written-form requirement for such contracts disappears altogether.

High earners lose a layer of protection. Anyone earning over €177,450 per

year can be dismissed more easily in exchange for a severance payment — and that severance will enjoy tax privileges provided the employee moves on quickly. The top tax rate kicks in at €250,000 (45 percent) and rises to 47 percent above €280,000.

Sick notes revert to the old norm. A doctor’s certificate is mandatory from the very first day of illness; the telephone-based alternative is scrapped. Penalties for fraudulent sick notes are also tightened. The Association of Family Doctors warned of a stampede to surgeries once the rule takes effect.

The coalition plans to cut one in four reporting obligations. And in a surprise move, bakeries, pastry shops and libraries may open more frequently on Sundays from January 2027.

Tax relief will reach families from 2027: roughly €10 billion annually. A two‑parent household with two children and a gross income of €60,000 stands to save over €600 per year — thanks to higher basic allowances, more child benefit and an increased employee flat-rate deduction.

Minijobs become costlier: the flat-rate social‑security charge climbs from 2 percent to 5 percent. The tax deduction for home‑improvement services shrinks from 20 to 15 percent. On the positive side, the limit for tax‑free Sunday and public‑holiday supplements rises to €75 per hour.

Pension and health‑insurance changes are scheduled for completion by the end of 2026. A capital‑financed pension, the end of the “pension after 45 years of contributions” rule, and a retirement age beyond 67 are all on the table. The health‑insurance system is set to be relieved by €16.3 billion from 2027.

Reactions are split. Rainer Dulger, head of the employers’ association, welcomed the greater flexibility. The DIHK praised the bureaucracy cuts but criticised the higher top‑tax rate. Ver.di chief Frank Werneke warned of a “culture of distrust,” especially regarding the sick‑note rules. DGB chair Yasmin Fahimi backs the tax relief but opposes the stricter certification requirements.