Current Draft Legislation – Assessment at the Individual-Item Level
For initiatives in preparation, negotiation, or coordination, each individual component of the draft is assessed separately from an economic standpoint – because laws often bundle countervailing elements, and a blanket rating obscures the actual impact. First, the drafts currently on the table (in preparation/negotiation), followed by recently adopted packages for comparison.
Pension reform 2026 based on the Old-Age Security Commission (33 recommendations)
in preparation
Legislative package after summer recess 2026, goal: resolution by end of 2026
Author: Merz · CDU/CSU + SPD · Overall tendency +3
The Old-Age Security Commission presented an overall package in June 2026, which the coalition intends to implement in full as a legislative package and bring into force in early 2027.
Linking the standard retirement age to life expectancy (2:1 mechanism)
Extends working life on a rule-based basis; if retirement is postponed by six months, the contribution rate is relieved by up to 0.35 percentage points and the benefit level is supported - clearly efficiency- and labour-market-enhancing.
+8Strengthened sustainability factor from 2032 (alpha to 0.33)
Dampens future pension adjustments (pensions rise more slowly than wages) and thus limits the increase in the contribution rate and federal subsidy - fiscally stabilising, but without short-term effect.
+6Statutory funded pension (2% additional contribution, split equally, fund investment)
Additional non-wage labour costs of 2 percentage points from ~2031 noticeably burden the labour factor; funding diversifies over the long term but only takes effect on the returns side after years.
−2Extension of the insured group to the self-employed, members of parliament and management board members
Broadens the financing base and reduces avoidance incentives; rising expenditure obligations in the short term, system-stabilising in the medium term.
+4Abolition of the mini-job special status (inclusion in the statutory pension insurance)
Ends the distortion favouring marginal employment, but increases costs for employers in labour-intensive sectors; ambivalent for employment in the low-wage sector.
+1BauGB amendment 2026 (Act to Modernise Urban Planning and Spatial Planning Law, 'Building Code upgrade')
under negotiation
1st reading Bundestag 25.06.2026, Bundesrat 10.07.2026, entry into force 01/2027
Author: Merz · CDU/CSU + SPD (BMWSB, Hubertz) · Overall tendency +6
On 27.05.2026 the cabinet adopted the second stage of the building law reform following the Bau-Turbo; it is intended to significantly speed up planning and approval procedures and will be dealt with before the summer recess.
Binding procedural deadlines, preclusion and streamlining of the environmental assessment
Land-use plans are in future to take a maximum of two instead of often five to seven years; shorter procedures considerably lower capital tie-up and project costs and raise housing construction capacity.
+8Full digitalisation of the land-use planning procedure (XPlanung standard)
Media-break-free data exchange and single-stage digital participation permanently reduce administrative effort; however, the effect strongly depends on implementation in the municipalities.
+6Housing construction as an overriding public interest in strained markets
Legal priority in the balancing process facilitates development plans and accelerates housing creation; positive for supply and rent price dampening.
+6Simplified densification (adding storeys, loft conversion without changing the development plan)
Activates inner-development potential without a costly plan change, saving developers time and costs - immediately supply-effective.
+7Removal of the time limit on special planning rules for biogas
Stabilises planning security for existing bioenergy; limited, but supply-side stabilising effect.
+3Second Act Amending the Federal Requirement Plan Act (Power Grid Expansion)
under negotiation
2026
Author: Merz · CDU/CSU + SPD (Federal Government) · Overall tendency +4
The Federal Government seeks to accelerate the expansion of the extra-high-voltage transmission grid; the first reading of the draft bill (21/6128) took place on 11 June 2026, with lead responsibility held by the Committee on Economic Affairs and Energy.
Statutory codification of need for 45 new and 13 amended grid expansion projects
The core of the draft bill legally codifies the energy-economic necessity and the priority need for a total of 58 projects (39 alternating-current measures, three interconnectors, the direct-current lines DC42 and DC42plus, and one offshore connection). The mechanism of impact is procedural acceleration: in later plan approval procedures, the need can no longer be fundamentally called into question, which shortens litigation and considerably eases approvals. In macroeconomic terms, this addresses a central bottleneck for Germany as a business location, because missing north-south transmission corridors force costly interventions in power plant operations (redispatch), whose costs recently reached the high single-digit billions and pass through to businesses and households via grid fees. Beneficiaries in the medium and long term are all electricity consumers, because a high-performance grid reduces congestion management and regional price differences and enables the integration of low-cost generation. The effect is predominantly medium- to long-term, since construction and commissioning take years, but the acceleration effect takes hold immediately. The high score reflects that security of supply and cost efficiency are addressed simultaneously and that the need is technically undisputed.
+7Priority for lower-cost overhead lines in new direct-current connections
The requirement to build new extra-high-voltage direct-current transmission lines in principle as overhead lines rather than as underground cables significantly reduces specific investment costs, since underground cabling costs a multiple. The mechanism of impact is a direct dampening of grid fees, because lower capital costs for grid operators are passed on to consumers via the regulated fee-setting process. Given a total investment volume of around €44.65 billion for the new projects, the construction method is a major cost driver, so that the overhead-line option noticeably reduces the long-term burden of location costs. Beneficiaries are the electricity-intensive industry and private households, which bear the grid costs proportionally; the only ones burdened are, at most, residents along affected corridors through reduced acceptance. The effect is long-term and structural, as it shapes the cost base of grid expansion over decades. The score is clearly positive because the measure aims purely at cost efficiency without weakening security of supply.
+6Allocation of investment costs of around €44.65 billion via grid fees
The one-off investment costs of the new projects of about €44.65 billion are refinanced via the regulated grid fees and thus directly burden electricity prices. According to government figures, an average increase in grid fees of around €30 to €35 per year is to be expected for typical household customers and around €400 per year for commercial customers. The burden thus falls precisely on energy-intensive operations and small and medium-sized enterprises, for which location costs are already a competitive disadvantage. In the short term, this component therefore has a cost-increasing effect, even if in the long term it is partly counter-financed by lower redispatch and congestion costs. The temporal asymmetry—immediate fee burden versus efficiency gains that only materialise later—accounts for the slightly negative score. Without accompanying budget subsidies for grid fees, the short-term burden effect would be even more pronounced.
−2Reform of the Working Hours Act – Transition to a Weekly Maximum Working Time
in preparation
2026
Author: Merz · CDU/CSU + SPD · Overall tendency +4 · updated 14/07/2026
Part of the labour market projects from the coalition agreement is a draft law on making working time law more flexible (switch from the daily to the weekly maximum working time within the framework of the EU Working Time Directive); the inclusion threshold is met because a fundamental labour law norm (system parameter) is being changed and the regulation effectively affects nearly all of the roughly 46 million employees and several hundred thousand companies.
Replacement of the daily 8-/10-hour limit with a weekly maximum working time
The measure relaxes a central fundamental labour law norm by applying a weekly maximum working time instead of a rigid daily upper limit; this allows companies to accommodate workload peaks and fluctuations in orders more flexibly without exceeding the 48-hour weekly limit set by the EU Directive. The transmission channel is higher allocative and capacity utilisation, which unlocks productivity reserves particularly in industry, construction, healthcare and project-driven services. The beneficiaries are employers as well as employees who want to compress working time more and offset it with time off; employees are potentially burdened if flexibility works one-sidedly at the expense of recovery periods. In the short term, adjustment costs arise in companies and collective agreements, while in the medium to long term the productivity and flexibility gain predominates. The score is clearly positive because the reform strengthens the supply side and competitiveness without immediate fiscal costs.
+6Adjustment of rest period regulations and collective bargaining opening clauses
In parallel, rest period and compensation regulations are to be adapted to more flexible working time models, giving the collective bargaining and workplace parties more room for arrangement. The transmission channel is better operational fine-tuning of deployment times, which reduces frictional losses and deploys skilled workers more efficiently in bottleneck sectors. Companies with shift and project operations in particular are likely to benefit; the impact is broad because opening clauses carry through to many employees via sectoral collective agreements. In the short term the effects are moderate and dependent on collective bargaining implementation, while in the long term they improve the adaptability of the labour market. The score is moderately positive because the efficiency gain is real, but its magnitude depends on the negotiating outcomes of the social partners.
+3Building Modernisation Act (GModG) – Amendment to the Heating Act
adopted 07/2026
Author: Merz · CDU/CSU + SPD · overall tendency −1 · updated 22.07.2026
The GModG replaces the Building Energy Act (the ‘Heating Act'), abolishes the mandatory 65 percent requirement for renewable energies and thereby changes a systemic parameter of heating-market regulation with broad impact on more than 21 million buildings and around 41 million dwellings; the Bundestag adopted it on 10.07.2026, and the Bundesrat approved it immediately afterwards.
Abolition of the mandatory 65 percent requirement for renewable energies / technology neutrality
The deletion of Sections 71 ff. GEG removes the obligation that new heating systems must be operated with at least 65 percent renewable energies and returns the choice of heating technology to the decision of the owners. Economically, this lowers the enforced investment costs per heating replacement, because alongside heat pumps (often 25,000 to 40,000 euros including accompanying renovation) cheaper gas or oil boilers become permissible again. Potentially affected are all of the roughly 21 million buildings as well as the entire heating construction sector and the plumbing, heating and air-conditioning (SHK) trade. Above all, the uncertainty that had blocked numerous renovation decisions since 2023 is eliminated, which can reactivate investment in construction and the trades in the short term. In the long term, technology neutrality shifts the cost risks onto rising fuel and CO2 prices, which the owner must bear themselves. The score is clearly positive because enforced requirements are replaced by freedom of choice and investment barriers are removed.
+5Green-gas/green-heating-oil quota (from 2028), bio-ramp (from 2029) and climate neutrality obligation from 2045
In place of the installation obligation come a green-gas/green-heating-oil quota taking effect from 2028 and, from 2029, the mandatory blending of a rising bio-share (bio-ramp); from 2045 fuels must be fully climate-neutral. The channel of effect is a growing share of comparatively expensive biogenic or synthetic fuels, whose costs pass through to households and businesses via the fuel price. Decisive is the massive scarcity of biomethane, bio-oil and green hydrogen: the limited availability of these quantities is likely to raise fuel prices significantly, which in an economy with already internationally above-average energy costs is poison for competitiveness. Affected are millions of operators of new oil and gas heating systems as well as energy-intensive businesses whose location costs continue to rise, while the details of the quota are only to be laid down in a separate law by December 2026. In the short term the burdens are minor, but in the medium to long term a structural cost surge with high regulatory uncertainty and price risk looms. The score is clearly negative because the foreseeable rise in the price of scarce green fuels noticeably aggravates energy costs and thus the disadvantages for the business location and competitiveness.
−5Continuation of the Federal Funding for Efficient Buildings (BEG) at 30 to 70 percent
The BEG funding is continued with funding rates between 30 and 70 percent, whereby the state assumes a considerable part of the investment costs for heating replacement and renovation. This mobilises private investment and provides planning certainty, but burdens the federal budget or the Climate and Transformation Fund with billions of euros per year. From an efficiency perspective, broadly spread subsidies come with windfall effects and partial price pass-through into the trades. The beneficiaries are owners and the renovation industry, the cost bearers are the taxpayers. In the short term the funding is investment-supporting, in the long term a permanent subsidy is fiscally questionable. The score lies close to zero with a slightly positive investment impulse.
+1Tenant protection: limited pass-through eligibility and hardship provision for the allocation of CO2 costs
Tenants are protected from excessive ancillary costs caused by inefficient heating systems; modernization costs can only be passed on to rent to a limited extent (a maximum of around ten percent, tied to efficiency in the case of heat pumps), supplemented by a hardship provision for landlords regarding the allocation of CO2 costs. The impact channel is another one-sided cost burden on owners, who are largely denied the ability to refinance heating modernizations, even though they bear the investment risk. This affects a real estate sector that is already faring poorly in the current economic phase, marked by high interest rates, increased construction costs, and collapsing transaction numbers, and it sends a very negative signal with regard to more than 20 million rental apartments. In the medium term, the limited ability to pass on costs threatens to deter further investors from the market and to slow the urgently needed inflow of capital into the existing building stock, because once again the business-economic reasons to invest in real estate are lacking. In the short term, the rule does stabilize tenants' purchasing power, but the investment delay and the loss of confidence among capital providers weigh considerably more heavily in economic terms. The score is clearly negative, because the intervention substantially weakens investment incentives in housing construction during an already fragile market phase.
−5New Basic Income Support – Thirteenth Act Amending SGB II
adopted 03/2026
Author: Merz · CDU/CSU + SPD · Overall tendency +4 · updated 22.07.2026
The reform converts the Citizen's Income into the ‚New Basic Income Support' and, with priority given to job placement, tightened sanctions and stricter asset assessment, amends a fundamental labour-market policy norm affecting around 5.5 million benefit recipients; the Bundestag passed the law on 05.03.2026, the Bundesrat approved it on 27.03.2026, with entry into force taking place gradually from 01.07.2026.
Reintroduction of priority for job placement and obligation to work to the maximum reasonable extent
The reform restores the priority given to job placement and obliges those capable of working to use their labour capacity to the maximum reasonable extent; single persons should, in principle, take up full-time employment where this is reasonable and necessary to end the need for assistance. The transmission channel is an increase in the effective labour supply through stronger activation of a portion of the roughly 5.5 million benefit recipients, a significant share of whom are capable of working and without employment. In a tight skilled-labour market, even the activation of a few hundred thousand people can noticeably increase labour supply and dampen wage pressure. The beneficiaries are employers and the public purse; in the short term, pressure on those affected rises. In the long term, higher labour force participation strengthens the economy's growth potential. The score is clearly positive.
+6Tightened sanctions up to the complete withdrawal of benefits
Those who break off measures, miss appointments or reject reasonable job offers must expect benefit reductions of up to 30 percent of the standard requirement for three months, in extreme cases the complete loss of benefits. Economically, tougher sanctions increase the opportunity costs of not searching and thereby strengthen work incentives. Empirical findings on earlier sanction regimes show measurably higher transitions into employment, though in some cases into less stable employment relationships. Those affected are the activatable portion of benefit recipients; fiscally, savings arise on standard benefits. In the short term, the effect operates through behavioural steering, in the medium term through shorter benefit durations. The score is positive.
+5Stricter asset and needs assessment, including for the self-employed
The asset and needs assessment is tightened, among others for self-employed benefit recipients, so that benefits should flow more precisely only to those genuinely in need. This reduces deadweight effects and tends to lower the overall expenditure of the system, which comprises a double-digit billion-euro amount annually. At the same time, the administrative assessment burden on the job centres rises, which absorbs part of the savings. Those affected are new and existing cases with assets above the reduced allowances. In the short term, transition costs arise; in the medium term, a more accurate and cheaper expenditure structure results. The score is slightly positive.
+3Combating organised benefit fraud (§ 64a SGB II) and renaming to Basic Income Support Benefit
A new § 64a SGB II specifically empowers the Federal Employment Agency to combat organised benefit fraud; added to this is the largely symbolic renaming of the Citizen's Income to Basic Income Support Benefit. Economically relevant is primarily the combating of fraud, which reduces the misallocation of public funds. The magnitude is difficult to quantify but is likely to be in the triple-digit million range. Those affected are mainly cases involving gang-related or bogus self-employment-related fraud. The renaming itself has no direct macroeconomic effect. The score is slightly positive.
+2Act on the Introduction of an Active Pension (tax-free additional earnings in retirement age)
under negotiation
2026
Author: Merz · CDU/CSU + SPD · Overall tendency +4
Central labour-market policy initiative of the coalition, which exempts earned income of employees beyond the standard retirement age from tax up to a monthly threshold and thereby creates, for the first time, a new fundamental tax norm in income tax law; the inclusion threshold is met via criterion (b) change to the income tax schedule as well as (c) broad impact, since several hundred thousand people reach the standard retirement age each year and potentially more than one million employed persons are affected over time.
Tax exemption of earned income up to around 2,000 euros per month for employees beyond the standard retirement age
The measure operates through the net-wage channel: those who have reached the standard retirement age and continue working can earn up to about 24,000 euros of annual income free of income tax, which significantly raises the effective net hourly wage of this group and increases the incentive to continue or expand employment. The macroeconomic magnitude lies in estimated annual tax revenue shortfalls in a range of roughly 0.9 to 2.5 billion euros, depending on actual take-up and the deadweight share of those who would continue working anyway. Beneficiaries are healthy, resilient older people with a continuing inclination to work, as well as companies in sectors with an acute shortage of skilled workers and experience, which can retain knowledge holders longer. In the short term, limited additional working hours and noticeable deadweight effects are to be expected, while the positive effect on the effective labour supply only becomes larger in the medium to long term and with demographically rising numbers of people entering retirement. The score is moderately positive because the initiative activates the scarce labour supply of older people and addresses the location problem of skilled labour shortages, while at the same time deadweight effects, unequal tax treatment relative to younger employees, and an unclear relationship between fiscal costs and actual additional work dampen the efficiency effect.
+4Flexibilisation of continued employment beyond the standard retirement age (accompanying labour and social security regulations)
Accompanying this, hurdles under fixed-term and social security law are to be lowered so that employers and near-retirement employees can continue employment relationships with legal certainty and without bureaucracy, which is what first makes the transmission channel of the tax relief practically usable. This is economically relevant because the labour potential of 65- to 74-year-olds in Germany comprises several million people, and even an activation in the low single-digit percentage range would measurably increase the economy-wide volume of work. Those who would benefit most are above all small and medium-sized enterprises and bottleneck occupations such as care, healthcare, skilled trades and technical services, while additional fiscal costs here remain low, as it is primarily about procedural simplifications. In the short term the effect is small, but in the long term it is structurally significant, as it softens the trend towards a rigid retirement entry and shapes transitions gradually. The score is slightly positive, since the flexibilisation has an efficiency-enhancing effect without generating notable distortions or burdens, but its quantitative contribution depends on the concrete design.
+3Act to Reduce Electricity Costs (Electricity Tax Reduction and Federal Subsidy for Grid Fees)
under negotiation
2026
Author: Merz · CDU/CSU + SPD · Overall tendency +4 · updated 30.07.2026
Energy cost package of the coalition intended to lower industrial and private electricity prices through a reduction in the electricity tax and a federal subsidy for transmission grid fees; the inclusion threshold is met via criterion (a), as the grid fee subsidy alone entails a permanent fiscal volume of around 6.5 billion euros per year and the measures affect a central location cost factor.
Reduction of the electricity tax to the European minimum level for the manufacturing sector as well as agriculture and forestry
The measure lowers the electricity tax for energy-intensive economic sectors from around 2.05 cents to the EU minimum level of about 0.05 cents per kilowatt-hour, thereby acting directly through the production costs of electricity-intensive businesses. The fiscal volume of this partial relief is in the order of around 2.5 billion euros per year and relieves in particular industry, agriculture and trade in international cost competition. Beneficiaries are the energy-intensive sectors such as chemicals, metals, paper and building materials, while the counter-financing burdens the federal budget and private households as well as parts of the service sector remain excluded for now. In the short term, the reduction improves the liquidity and competitiveness of the favored businesses; in the long term, it reduces the incentive to relocate production abroad. The score is clearly positive, because a targeted reduction of a distorting consumption tax on an intermediate input is economically efficient and reduces acute location disadvantages, although the selective design creates unequal treatment between sectors.
+5Federal subsidy for transmission grid fees
Through a federal subsidy in the order of around 6.5 billion euros annually, the transmission grid fees are to be dampened, which, as part of the electricity price, affect all consumers regardless of sector or income. The transmission channel is a broad reduction of the grid fee component, which has recently made up a growing share of the electricity bill and continues to rise due to grid expansion. All electricity customers would benefit, i.e. around 41 million households and the entire corporate sector, while the costs are shifted entirely onto the federal budget and thus the taxpayers. In the short term, the subsidy stabilizes end-customer prices, but in the long term, the tax financing obscures the actual grid costs and weakens price signals for grid-friendly consumption. The score is positive but cautious, because the relief is broad and location-effective, yet the permanent budget burden in the billions and the distorted investment and consumption signals weigh on the efficiency balance.
+4Abolition of the gas storage levy
The elimination of the gas storage levy directly relieves gas-price-linked consumers and industrial businesses by removing a levy-financed surcharge on gas procurement that had previously also raised the cost of cross-border deliveries and distorted trade flows. The relief effect is in the low single-digit billion range per year and mainly affects gas-intensive industry as well as district heating and household customers. Beneficiaries are manufacturing businesses with high gas use and heating customers, while the lost revenue must be covered elsewhere. In the short term, the measure directly lowers energy costs; in the long term, it eliminates a special levy that distorts the internal market. The score is positive, because dismantling a distorting special levy increases cost efficiency and reduces location disadvantages, but the volume is smaller than with the other components.
+3Procurement Transformation Act (Modernisation and Acceleration of Public Procurement Law)
under negotiation
2026
Author: Merz · CDU/CSU + SPD · Overall tendency +2 · updated 30.07.2026
Reform of public procurement intended to accelerate procedures, raise value thresholds and digitalise procurement; the inclusion threshold is met via criterion (c) broad impact, as the public procurement volume in Germany is estimated at several hundred billion euros per year and well over 100,000 companies are affected as bidders.
Raising the value thresholds for direct awards and simplified negotiated procedures
Higher threshold and value limits allow public contracting authorities to award smaller and medium-sized contracts without elaborate formal procedures, which reduces procedure duration and transaction costs on both sides. Given an estimated public procurement volume of several hundred billion euros annually and hundreds of thousands of companies involved, the leverage is considerable, as even a shortening of procurement times noticeably accelerates public investment and maintenance. The beneficiaries are above all small and medium-sized enterprises and municipalities, which are disproportionately burdened by bureaucracy and lengthy procedures. In the short term administrative effort declines, in the medium term the implementation speed of public investment rises, which is growth-effective particularly in view of the large infrastructure programmes. The score is clearly positive, because procedure-accelerating and cost-reducing measures in procurement law deliver a high and largely side-effect-free efficiency gain when the volume is large.
+5Mandatory digitalisation and centralisation of procurement platforms
Fully electronic procurement via standardised platforms reduces media discontinuities, duplicate data entry and error rates, thereby permanently lowering procedure costs for contracting authorities as well as bidders. The economic effect arises through lower bidding costs, more competition due to easier market access and a better data basis for efficient procurement. Smaller bidders in particular would benefit, for whom the administrative effort has so far constituted a de facto barrier to market entry, as would public bodies with scarce administrative capacities. In the short term conversion costs arise, but in the medium to long term the efficiency and competition gains clearly outweigh them. The score is positive, since digitalisation structurally lowers transaction costs and broadens competition, although the effect depends on the actual quality of implementation.
+3Mandatory consideration of social and ecological criteria in procurement
The binding inclusion of sustainability, social and collective-agreement-compliance criteria does pursue political goals, but from an efficiency perspective it increases the complexity and compliance costs of procedures and can restrict pure price competition. The channel of impact is an additional verification and documentation burden that makes tenders more expensive and tends to favour larger, more administratively capable providers. Those burdened are above all smaller companies without their own compliance departments as well as public contracting authorities, whose procedures become longer and more expensive. In the short term effort and bid prices rise, in the long term there is a risk of a conflict of objectives with the simultaneously intended acceleration of procedures. The score is slightly negative, because additional mandatory procurement criteria counteract the intended cost reduction and acceleration and partly consume the efficiency gain of the other components.
−2Tax Reform 2026 – Tariff relief for low and middle incomes, family relief and adjustment of the wealth tax
under negotiation
Autumn 2026
Author: Merz · CDU/CSU + SPD · Overall tendency +2
The coalition committee meeting of 1 July 2026 specified, within the ‘Upswing and Employment' programme, the key income tax parameters that are now entering parliamentary deliberation as a draft bill; the inclusion threshold is met because the income tax schedule, as a central systemic parameter of the economic order, is being altered, the permanent relief volume of the tariff component reaches several billion euros per year, and with over 40 million taxpayers virtually the entire working population is affected.
Tariff relief for low and middle incomes
The measure lowers the effective marginal and average burden in the lower and middle tariff range, for example by raising the basic tax-free allowance and shifting the tariff thresholds to counter bracket creep. The transmission channel runs through higher disposable income, which supports private consumption in the short term and slightly increases labour supply (additional hours worked, labour force participation) in the medium term. The magnitude of the pure tariff relief is in the mid single-digit billion range per year and is broadly distributed across employees and small self-employed persons. In the short term the demand impulse dominates, in the long term the moderate supply effect via declining marginal tax rates. The positive score reflects the efficiency-enhancing effect, but is dampened by the limited leverage of a pure tariff adjustment without structural simplification.
+5Family relief (child benefit and child tax allowance)
Raising child benefit and the child tax allowance increases the disposable income of households with children and thus acts primarily on the distributional and demand side. The macroeconomic growth lever is limited, as the funds flow predominantly into consumption and less into investment or labour supply. The annual volume is in the low to mid single-digit billion range and affects several million families. In the short term the measure stabilises domestic demand; in the long term efficiency effects on the labour force participation of second earners are possible, but weak. The moderately positive score reflects the small but existing supply-side effect.
+3Adjustment of the wealth tax (top and highest-rate range)
The adjustment, politically driven by the SPD, aims at a higher burden on very high incomes, whose precise calibration (rate, entry threshold) is still under negotiation. From a pure efficiency perspective, a rising top marginal tax rate increases the burden not only on top earners but, via income tax, also on many high-earning partnerships and family businesses, which dampens investment and performance incentives. The transmission channel runs through a lower net return on entrepreneurial activity and through potential avoidance or structuring responses that limit the actual additional revenue. Although only a small group is affected in numerical terms, the location effect is disproportionately large owing to their high investment and employment relevance. In the short term additional fiscal revenue arises, in the long term negative supply and location effects loom, which is why the score turns out negative.
−3Budget Act 2027 and Federal Financial Plan 2026 to 2030
under negotiation
Autumn 2026
Author: Merz · CDU/CSU + SPD · Overall tendency ±0
The government draft of the 2027 federal budget goes through the parliamentary readings in autumn 2026; it clearly exceeds the inclusion threshold under criterion (a), as the spending volume is in the order of around half a trillion euros (core budget 2026 already 524.54 billion euros) and the budget, for the first time over a full year, operationalises on a large scale the debt brake reformed in March 2025 and the 500-billion-euro special infrastructure fund.
Investment ramp-up from the special infrastructure fund (500 billion euros over 12 years)
The budget locks in a significantly increased investment amount for transport, rail, energy grids and digitalisation, which is credit-financed via the 500-billion-euro special fund and is thus intended to mobilise, on average, around 40 billion euros per year in arithmetic terms. The transmission channel is the renewal of a capital stock underfunded for years, which supports productivity, locational quality and potential growth over the medium to long term. Beneficiaries are the construction industry, suppliers and the export-oriented industry that depends on functioning infrastructure. In the short term, there is a risk that capacity bottlenecks in the construction sector and lengthy planning procedures will delay the effectiveness of the funds and drive up prices. On the positive side, unlike consumptive spending, this involves growth-oriented investment with a potentially positive return; the score remains at a clearly positive but not euphoric assessment owing to implementation and efficiency risks.
+5Credit-financed increase in defence spending (exemption above 1 percent of GDP from the debt brake)
The amendment to the Basic Law adopted in March 2025 exempts defence spending above one percent of GDP from the debt brake, and the 2027 budget exploits this leeway for a robust increase in the defence budget. In macroeconomic terms, the growth impact is ambivalent: while defence spending supports employment and parts of domestic industry, it has a high import share and a lower economy-wide multiplier effect than infrastructure investment. Beneficiaries are defence and security companies as well as their suppliers, while financing is entirely via new debt. In the short term, a cyclical demand impulse arises; in the long term, the additional spending permanently ties up budgetary leeway and increases the debt level. Since the pure efficiency and competitiveness effect is limited and the spending is predominantly security- rather than growth-motivated, the score is only slightly positive.
+1High structural net borrowing in the core budget
The draft perpetuates high net borrowing, so that the federal government's interest expenditure once again becomes one of the largest spending items and burdens future budgets. The transmission channel is crowding out: rising interest and repayment burdens restrict the fiscal leeway for tax cuts or productive spending in subsequent years and, in the event of higher capital market interest rates, can make private investment financing more expensive. Those burdened are above all future taxpayers and upcoming budget years, while the short-term demand effect of the borrowing accrues today. It is problematic that a growing share of the borrowing is tied not to investment but to consumption, meaning that the build-up of debt is not counter-financed by higher growth. Owing to this structural burden and the limited growth coverage, I assign a clearly negative score.
−4Growing federal subsidies to the social insurance schemes (pensions and healthcare)
The budget must provide for rising subsidies to the statutory pension and health insurance schemes, which together amount to a three-digit billion figure and grow faster than economic output. The transmission channel is the demographically driven spending dynamic, which ties up an ever larger part of the federal budget and thereby narrows the leeway for growth-oriented uses. Beneficiaries are pensioners and the insured through stabilised contribution rates; those burdened are taxpayers and the federal government's investment ratio. In the short term, the subsidy secures social stability; in the long term, without structural reforms of the social system, it aggravates the sustainability problem of public finances. Since the funds are predominantly consumptive and the underlying spending dynamic remains unchecked, the score is negative.
−3Electricity Supply Security and Capacity Act (StromVKG) / Power Plant Strategy
adopted 07/2026
Author: Merz · CDU/CSU + SPD · Overall tendency +2
The Bundestag passed the Act to Secure the Electricity Supply in early July 2026; it intervenes in a systemic parameter of the economic order (electricity market design) by anchoring a capacity mechanism, subsidising new dispatchable power plants and tendering additional renewables volumes.
Support for new hydrogen-ready gas-fired power plants (power plant strategy)
This component subsidises the construction of dispatchable gas-fired power plants that can later be converted to hydrogen, in order to offset the phase-out of coal and, in perspective, nuclear capacity and to bridge periods of low wind and solar generation. The transmission channel is security of supply: secured capacity lowers the risk of scarcity prices and load shedding, which is a hard locational factor precisely for energy-intensive industry. The discussed magnitude of the power plant strategy lies in the high single-digit to low double-digit gigawatt range, with support and capacity payments in the low double-digit billion range over the contract term. Beneficiaries are operators as well as electricity-intensive consumers who profit from stable supply; the burden falls on taxpayers or, via levies, on electricity customers. In the short term, costs and tendering effort predominate, while the benefit (power plants coming online) only accrues towards the end of the decade. Since the mechanism increases security of supply but is expensive and subsidy-intensive and can entail market distortions, I award a moderately positive assessment.
+3Introduction of a capacity mechanism in the electricity market
The capacity mechanism remunerates not only delivered energy but the provision of secured capacity, thereby fundamentally changing the market design. Economically, this addresses a real problem of the energy-only market, in which flexible backup power plants become unprofitable without an additional revenue source, even though they are needed for system stability. The magnitude depends on the auction volume but is likely to reach annual payments in the single-digit billion range, ultimately borne by end customers. Beneficiaries are operators of flexible plants and large industrial consumers with a strong interest in security of supply; the burden falls on households and businesses via the electricity price components. In the short term the mechanism drives up costs, in the medium term it has a stabilising effect, provided the tenders are designed to be technology-neutral and competitive. Owing to the sensible underlying principle combined with cost risk and distortion potential, I rate it slightly positive.
+2EEG special tender for onshore wind energy (5,000 MW for 2026)
An additional special tender of 5,000 megawatts of onshore wind is intended to mobilise the large stock of permitted but not yet built projects and not to count these volumes against the regular tender volumes. The transmission channel is additional generation with very low marginal costs, which tends to dampen the wholesale price and reduces import dependency. The investment volume for 5 GW is around 5 to 6 billion euros; the subsidy burden via market premiums depends on the future price level and is limited at current prices. Beneficiaries are project developers and plant manufacturers as well as, in the long term, electricity consumers; a cost risk for the budget arises only in the case of persistently low market prices. In the short term the measure activates dormant permits, in the long term it broadens the low-cost supply, but it requires accompanying grid expansion to avoid curtailment. Since the efficiency contribution via price dampening and supply predominates, I award a slightly positive assessment.
+2GKV Contribution Rate Stabilization Act (Statutory Health Insurance Financial Reform)
adopted 07/2026
Sponsor: Merz · CDU/CSU + SPD (Federal Ministry of Health: Nina Warken) · Overall tendency ±0
On July 10, 2026, the Bundestag passed the major GKV financial reform, which is intended to close a coverage gap of €15.3 billion expected for 2027 (approximately €40 billion by 2030), thereby meeting both the fiscal criterion of at least €5 billion per year and the broad impact criterion affecting around 74 million statutorily insured persons as well as, via non-wage labor costs, virtually all businesses.
Deferral of federal loan repayments to the GKV (€5.6 billion)
The federal government is deferring the repayment, originally due, of loans totaling €5.6 billion granted to the statutory health insurance system in 2023, 2025, and 2026, thereby providing the health insurance funds with short-term liquidity without actually supplying new funds. Economically, this represents a pure shift in due dates rather than a structural improvement on either the revenue or expenditure side, leaving the GKV's fundamental coverage problem untouched. Beneficiaries in the short term are the health insurance funds and, by extension, contribution payers, who are spared an even sharper premium jump in 2027; the federal budget of subsequent years is burdened instead, once the repayment must be made up. The effect is purely temporary and primarily buys the government time without addressing the structural cost increase that has existed since 2024. Since genuine consolidation fails to materialize and payment obligations are merely postponed into the future, the macroeconomic assessment is slightly negative.
−1Phased increase in the federal per-capita contribution for recipients of Bürgergeld and basic security benefits
The federal government is gradually raising the flat-rate contribution it pays to the GKV for recipients of Bürgergeld and basic security benefits from €250 million (2027) through €500 million and €1 billion to €2 billion annually from 2031 onward, thereby progressively bringing it closer to the actual expenditures for this group of insured persons. Until now, contribution payers have implicitly borne a substantial share of this non-insurance-related benefit, so the reform at least partially corrects a long-standing structural underfunding by the state. Contribution payers and employers benefit, as their supplementary contribution rates are dampened in the long run by the additional federal funds, while the federal budget is burdened further. The measure only unfolds its full effect over several years through 2031 and is thus clearly designed for the long term. Since it addresses a genuine systemic flaw at the expense of contribution payers, the assessment is moderately positive, even though the volume remains limited compared with the overall gap of up to €40 billion.
+3Reduction of the federal subsidy to the Health Fund by €2 billion to €12.5 billion from 2027
In parallel with the relief measures, the federal government is cutting its general tax-funded subsidy to the Health Fund from 2027 by €2 billion to then €12.5 billion, thereby withdrawing a key pillar of the GKV's existing co-financing. Economically, this shifts the financing burden from the general taxpayer base back onto contribution-liable employees and employers, tending to drive up supplementary contribution rates and thus non-wage labor costs. This primarily burdens employees and companies via the equally shared contribution financing, while the federal budget is relieved in the short term. Given Germany's already internationally high non-wage labor costs, this step tends to work against the reform's actual objective of stabilizing contribution rates. Experts at the Health Committee hearing explicitly criticized the federal government's insufficient willingness to fully assume non-insurance-related benefits, which is why this component must be assessed negatively.
−4Overarching goal: limiting expenditure growth to avoid an overall contribution rate of up to 19.3 percent
The core objective of the law is a revenue-oriented expenditure policy designed to prevent the overall contribution rate to statutory health insurance from rising to as much as 19.3 percent absent countermeasures, after the average additional contribution rate has already more than doubled since 2022. A successful stabilization of contribution rates would have a noticeable macroeconomic effect, as non-wage labor costs represent a key location factor for labor-intensive industries, and each contribution point amounts to several billion euros for employers and employees alike. Virtually all of the roughly 74 million statutorily insured individuals and their employers would benefit from a successful moderation of costs, while service providers such as hospitals and pharmaceutical manufacturers would face greater pressure due to accompanying savings requirements. The effect is designed to unfold over the medium to long term, as the actual structural reforms in hospital financing and pharmaceutical spending will only take effect with a delay. Since the federal government itself is assuming only part of its non-insurance-related burdens and experts expressed doubts during the hearing about whether the goal would be achieved, the ambitious stabilization target is assessed positively, albeit with reservations regarding the certainty of implementation.
+4Act on Reducing Bureaucracy in the Trade Regulation Act and the Energy Consumption Labelling Act
passed 06/2026
Author: Merz · CDU/CSU + SPD (BMWE) · Overall tendency +5
On 11 June 2026, the Bundestag passed the Act on Reducing Bureaucracy in the Trade Regulation Act and the Energy Consumption Labelling Act, which, according to government figures, is intended to reduce the economy's bureaucracy costs by 25 percent, or around €16 billion, and to lower compliance costs for businesses, citizens and administration by at least €10 billion, thereby clearly exceeding the fiscal threshold of €5 billion per year.
Abolition of reporting obligations and superfluous provisions in the Trade Regulation Act
The centerpiece of the act is the elimination of dispensable provisions and reporting obligations in the Trade Regulation Act, which, according to government estimates, is expected to save the economy around €16 billion, or 25 percent, in bureaucracy costs. The channel of effect is the direct reduction of administrative and documentation burdens for commercial enterprises, freeing up personnel and time resources for productive activities instead of formalities. Since the Trade Regulation Act affects virtually all of the approximately 3.5 million registered trade businesses in Germany, the breadth of impact is substantial and exceeds the threshold of 100,000 affected companies many times over. In the short term, administrations face transition costs as they adapt their procedures, while the relief for businesses will only take full effect gradually after the law enters into force. Since this is a real, quantified and lasting cost reduction without discernible macroeconomic drawbacks, the assessment is clearly positive.
+6Simplifications in the Energy Consumption Labelling Act
The act also reduces labelling and reporting obligations under the Energy Consumption Labelling Act, which particularly affects manufacturers, importers and retailers of electrical appliances. The channel of effect lies in lower testing, documentation and reporting burdens along the supply chain, which can accelerate the market launch of new products and reduce compliance costs. The main beneficiaries are small and medium-sized electrical retailers and manufacturers, who previously had to comply with parallel national and European labelling requirements; consumers could experience a minor disadvantage due to a slightly reduced level of information. The scale of this sub-component is significantly smaller compared to the Trade Regulation Act reform and likely represents only a fraction of the aforementioned €16 billion. Since the effect is real but limited and hardly any conflicting goals are apparent, this component is rated moderately positive.
+3Reduction of compliance costs for citizens and administration by at least €10 billion
Beyond the pure business costs, compliance costs for citizens as well as for public administration are to be reduced by at least €10 billion, for example through the elimination of superfluous verification and reporting procedures. The channel of effect here is a general streamlining of administrative processes, which shortens processing times at authorities as well as reducing the effort for applicants. In addition to businesses, private individuals and municipalities also benefit from the relief, as their administrations gain capacity for other tasks; losers are hardly identifiable, since this mostly concerns pure formalism. The effect unfolds gradually, as many administrative processes first need to be adapted technically and organizationally, meaning the full effect will only become visible in the medium term. Given the considerable scale and the broad, practically risk-free relief effect, this component is rated positive, even though implementation in administrative practice will take time.
+5