Germany Slashes Federal Workforce, Extends Fixed-Term Contracts to Four Years in Sweeping Reform

Germany's coalition approves sweeping reforms: 8% federal admin job cuts, extended fixed-term contracts up to 48 months, and €10 billion income tax relief for low/middle earners by 2027.

Germany’s ruling coalition of CDU, CSU and SPD has approved a 34-point package titled “Deutschland flottkriegen” (Get Germany Moving), which cuts deep into labour, social and tax law. The centrepiece: a blanket eight-percent reduction in federal administration posts.

The German Civil Service Federation (dbb) immediately pushed back. Chairman Volker Geyer called the fixed target “the wrong approach without prior task scrutiny” and demanded more investment in digitalisation instead. However, the dbb welcomed planned flexibility in career-path regulations, saying it could make the bureaucracy nimbler. Opposition to broader use of fixed-term contracts without a material reason remains.

Those contract rules change drastically. From now on, employers can offer fixed-term positions without a stated cause for up to 48 months — double the previous limit. Up to six renewals are permitted within that window, and the provision applies to anyone hired by the end of 2030. Dismissal protection is also loosened for top earners. Companies can terminate employment more easily once monthly pay reaches roughly €15,000 — 1.75 times the contribution assessment ceiling. Employees who quickly find a new job will receive tax advantages on severance payments.

Employer groups BDA and the Initiative Neue Soziale Marktwirtschaft (INSM) praised the flexibilisation. In contrast, trade union Ver.di and the DGB Nord warned that the measures foster distrust toward workers and fuel precarious employment.

On the tax side, a major income-tax reform takes effect on 1 January 2027. The annual relief volume is around €10 billion, aimed chiefly at low and middle incomes. A family with two children and €60,000 yearly earnings should save over €600. Higher basic and child allowances, plus child benefit rising to €272 by 2028, enable the relief. To finance it, the coalition raises the top income-tax rate: 45% on earnings above €250,000 and 47% above €280,000. INSM criticised the burden on the middle class; parts of the SPD support the plan.

In healthcare, the telephonic sick note is scrapped. From now on, employees must present a doctor’s certificate from the first day of illness. General practitioners’ associations oppose the rule.

Other measures include blanket abolition of reporting obligations to cut red tape, and implementation of the pension commission’s recommendations by the end of 2026. Reform of the Working Hours Act has been postponed.