The CDU/CSU and SPD coalition led by Friedrich Merz aims to revitalize Germany's economy amid sluggish growth and staff shortages by encouraging increased work hours and immigration. Key reforms include introducing tax-free overtime bonuses to incentivize extra work without taxing the overtime premium, addressing the labor gap caused by retiring Baby Boomers. These measures, along with streamlined immigration for skilled workers, reflect a comprehensive approach to bolstering workforce participation and economic competitiveness.
In future, the government will encourage employees to take on extra hours with a new 'tax-free overtime' rule. The tax exemption only applies to overtime bonuses, rather than the hourly wage itself.
Merz has taken a two-pronged approach, with incentives for overtime as well as changes to existing workers' rights laws, aiming to increase workforce participation.
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