Germany’s Coalition Government Plans Welfare Reforms and Tax Adjustments
Germany’s new coalition government, comprised of the CDU/CSU and SPD parties, is moving forward with significant changes to the country’s welfare system and tax policies, sparking debate among policymakers and social advocates. The reforms, outlined in a coalition agreement, aim to tighten rules surrounding social benefits and provide economic relief through tax adjustments.
A key component of the planned overhaul is a restructuring of the “Bürgergeld” (citizen’s income) system, which will be replaced by a new “Grundsicherung für Arbeitssuchende” (basic security for job seekers) starting July 1, 2026. CDU Secretary General Carsten Linnemann has argued that the current system doesn’t go far enough in preventing abuse, stating, “Then further laws must follow. That is not enough.”
Linnemann specifically criticized the rules governing supplementary income, arguing that the current system incentivizes minimal work. “There are people who work five to ten hours (per week) and supplement their income with Bürgergeld,” he said, adding, “This creates a system in which social benefits are legally obtained. That must stop.” He proposed a system where earnings from even a few hours of work would be fully deducted from Bürgergeld benefits, with increased earnings leading to greater retained income. Currently, the first 100 euros earned are tax-free, with 80 percent of subsequent income deducted.
The coalition also intends to tighten migration policy, including a two-year freeze on family reunification for refugees with limited protection status and increased border checks, even for asylum seekers. A large-scale deportation initiative is planned to return individuals without the right to remain in Germany. Notably, the agreement includes a provision to end Bürgergeld payments to Ukrainian refugees, a key demand from the CDU during their campaign.
On the economic front, the coalition promises tax relief for workers by adjusting income brackets and flattening the tax rate curve. Corporate tax rates will be lowered by 1% each year for five years, beginning in 2028. A 30% depreciation allowance on capital investments is planned for 2025-2027, and lower income tax rates for small and medium incomes are expected around 2027. The solidarity surcharge (“Soli”) will remain unchanged.
Linnemann has also renewed calls for a significant reduction in income tax rates. “Deliveries must be made on income tax,” he stated, suggesting a discussion with the SPD regarding a reform package. He proposed raising the threshold for the top tax rate from €68,000 to €80,000 in annual gross income, aiming to alleviate the tax burden on the middle class.
The planned reforms have already sparked debate within the German parliament. Recent discussions surrounding the Grundsicherung reform have revealed disagreements, with critics raising concerns about the potential impact on vulnerable populations. The debate highlights the challenges of balancing social support with incentives for employment and fiscal responsibility.
the CDU is pushing for stricter rules regarding access to social benefits for EU citizens. CDU Secretary General Carsten Linnemann cited concerns about organized structures exploiting the system, arguing that the current regulations allow individuals to receive supplementary citizens’ income even with only part-time or marginal employment (mini-job). He is calling for a tightening of EU rules on the free movement of workers.
The coalition agreement also addresses labor market flexibility, with a target minimum wage of €15 per hour by 2026, pending approval from a commission. Retirees who continue working past retirement age will be eligible for tax-free earnings up to €2,000 per month (an “Active Retirement” bonus), and tax-free bonuses will be offered for overtime work exceeding standard full-time hours.
