Germany has announced a wide-ranging package of economic and labour reforms aimed at reviving its sluggish economy, with one of the most significant changes being the requirement for employees to submit a medical certificate from the very first day of illness in order to claim sick leave. The proposal forms part of a broader 34-point reform programme introduced by Chancellor Friedrich Merz’s coalition government, which says the measures are intended to boost productivity, improve competitiveness and restore confidence in Europe’s largest economy.
Under the proposed rules, workers will no longer be allowed to obtain sick leave through telephone consultations or remain absent for the initial days without medical documentation. Employers will be able to insist on a doctor’s certificate from the first day an employee reports sick. The government argues that the existing system has contributed to unusually high levels of absenteeism, adversely affecting economic output and placing Germany at a competitive disadvantage.
Addressing the reforms, Merz acknowledged that the decision would be difficult but maintained that Germany could no longer afford prolonged absences from work. He said the government’s objective was to increase business flexibility, reduce bureaucratic hurdles, safeguard the country’s welfare system and ease the financial burden on both employees and companies through lower taxes. The coalition has indicated that the main components of the reform package are expected to be placed before Parliament before the end of the year.
The labour reforms extend beyond sick leave regulations. Companies will be permitted greater flexibility in hiring employees on fixed-term contracts, allowing such appointments for up to four years under a pilot arrangement. The government also plans to simplify dismissal procedures for highly paid employees through compensation-based settlements, a move intended to provide businesses with greater operational flexibility while adapting to changing labour market conditions.
The labour measures are part of a much larger economic package that also includes significant tax reforms. The coalition has proposed annual income tax relief worth approximately €10 billion, primarily benefiting low- and middle-income households. According to government estimates, once the reforms are fully implemented by 2028, a family with two working parents, two children and an annual taxable income of around €60,000 would receive tax savings of nearly €600 every year. The tax relief will largely be financed by increasing the highest income tax rate from 45% to 47% for individuals earning more than €250,000 annually.
Finance Minister Lars Klingbeil defended the proposal, saying higher-income groups should shoulder a larger share of the tax burden to enable broader economic relief. The government believes that putting more disposable income into the hands of ordinary households will encourage consumer spending and stimulate growth.
Another major component of the reform package focuses on Germany’s pension system, which has come under increasing pressure due to the country’s ageing population. The coalition intends to gradually raise the retirement age beyond the present limit of 67 years by linking it to life expectancy. The proposals also include introducing a capital-market element into the pension system to improve its long-term financial sustainability while ensuring pension benefits remain stable.
In addition, the government plans to reduce bureaucracy by simplifying reporting requirements, cutting administrative procedures, streamlining tax compliance and speeding up infrastructure approvals. Officials believe these measures will improve the business environment, encourage investment and make Germany more attractive for industries such as artificial intelligence, semiconductor manufacturing and clean technologies.
The reforms come as Germany continues to grapple with slow economic growth, rising energy costs, weak private investment, growing competition from China and the long-term economic impact of recent global crises. Merz’s coalition has faced mounting political pressure to demonstrate tangible progress after more than a year in office, with the government also seeking to counter growing support for the far-right opposition. While business groups have largely welcomed the proposals, trade unions and medical professionals have expressed concern that stricter sick leave rules could increase pressure on healthcare services and erode employee trust. The reform package will now require parliamentary approval before the measures can be implemented.
