The coalition agreement between the CDU, CSU and SPD

The future governing parties CDU/CSU and SPD had already presented the coalition agreement for their term of government on April 14, 2025. After the coalition agreement also received the placet of the SPD members called to vote on April 30, 2025, Friedrich Merz is now to be elected as the new German Chancellor on May 6, 2025.

External and internal factors pose major challenges for the new federal government. The task appears immense. Will the new federal government succeed in making the big leap and is it in a position to help the German economy achieve the necessary upturn or are the contents of the coalition agreement - as a former Dax board member remarked - too late and too little?

Let's take a look at the main contents of the coalition agreement - from the perspective of German companies and international investors.

According to the coalition agreement, new German economic policy should be characterized by a commitment to the social market economy. Bureaucracy reduction, tax cuts, deregulation and investment in infrastructure, energy and new technologies are the economic policy buzzwords.

In detail:

Tax policy and tax cuts

The coalition agreement provides for a reform of the tax system with the aim of strengthening Germany's economic competitiveness. The aim is to reduce taxes and levies in order to relieve the burden on companies and promote investment - although, like all of the coalition partners' proposals, this is still subject to financing. Starting on January 1, 2028, the corporate tax rate is to be reduced by one percentage point in five stages. In order to enable taxation that is neutral in terms of legal form, the option model and preferential treatment of retained earnings in particular are to be improved to provide relief for all companies and entrepreneurs in Germany that are subject to income tax. A special depreciation allowance of 30% on equipment investments for the years 2025, 2026 and 2027 is also intended to promote at least short-term investments by companies. The solidarity surcharge will remain untouched. A uniform VAT rate of 7% is to apply in the catering sector in future; the electricity tax is also to be reduced, initially by at least five cents per kWh.

Labor market policy

Overtime should be worthwhile for employees again. Overtime bonuses that exceed the collectively agreed full-time working hours are to become tax-free, and tax-free allowances are to apply for employees who continue to work voluntarily after reaching retirement age. The commuter allowance is to be increased to 38 cents as of 01.01.2026.

A reform of the Working Hours Act is also being sought in order to create more flexibility for employees and employers. This should also include the possibility of weekly instead of daily maximum working hours.

In order to counter the shortage of skilled workers in Germany, work permits for qualified skilled workers are to be significantly accelerated. To this end, a digital agency for the immigration of skilled workers - a "work-and-stay agency" - with a central IT platform is to be established with the involvement of the Federal Employment Agency as a single point of contact for foreign skilled workers, which will coordinate all processes relating to employment migration and the recognition of professional and academic qualifications and dovetail them with the structures in the federal states.

The statutory minimum wage should continue to be determined by the independent minimum wage commission; a minimum wage of 15 euros is achievable for 2026.

Reducing bureaucracy and abolishing the Supply Chain Due Diligence Act

A central point of the coalition agreement is the reduction of bureaucracy in order to increase the efficiency of public administration and reduce the burden on companies. This includes the digitalization of processes and the simplification of approval procedures. The new government plans to make practical checks to reduce bureaucratic hurdles mandatory for all ministries. Bureaucracy costs for the economy are to be reduced by 25 percent (around 16 billion euros).

The national Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) is to be abolished and replaced by a law on international corporate responsibility that implements the European Supply Chain Directive (CSDDD) in a low-bureaucracy and enforcement-friendly manner. The reporting obligation under the LkSG is to be completely abolished immediately.

The current statutory due diligence obligations will not be sanctioned until the new law comes into force, with the exception of massive human rights violations. The coalition wants to support the EU Commission's "omnibus project" in order to significantly reduce the extensive requirements regarding the content of EU sustainability reporting, particularly for SMEs, and to postpone their initial implementation. It remains to be seen to what extent the law on international corporate responsibility will then actually represent a significant relief for companies. An amendment and simplification is also planned for energy efficiency under the Energy Efficiency Act and the Energy Services Act. Energy efficiency targets should not hinder the flexibility of electricity consumption.

A one-stop store for company start-ups will be introduced, which will bundle all applications and administrative procedures digitally and enable companies to be set up within 24 hours. This should make it easier for foreign investors to enter the market and reduce administrative hurdles.

Infrastructure

Investment in infrastructure is a key component of the coalition agreement. The aim is to comprehensively modernize the transport infrastructure, including the expansion of rail and road networks. The expansion of digital infrastructure is also seen as crucial for economic development. Here it will be important to ensure that the funds from the 500 billion euro special fund actually reach the infrastructure. In order to be able to quickly satisfy the urgent investment needs with the funds from the special fund for infrastructure at federal/state/local level, the possibilities for accelerating the planning and approval, procurement and awarding of infrastructure projects from the special fund should be exhausted and ambitiously regulated in an Infrastructure Future Act. It should also be examined whether major infrastructure projects outside the special fund can also be endowed with an overriding public interest in order to enable prioritized implementation.

Housing construction and property promotion

Tax measures for home ownership for families are to be improved, measures to replace equity capital and state guarantees for mortgages are to be examined under the heading of home ownership start-up aid. Incentives for climate-friendly and cost-efficient construction are to be promoted, among other things, by merging the KfW subsidy programmes into two central programmes, one for new construction and one for modernization. Housing construction is to be promoted by setting up an investment fund financed by public guarantees and private capital. Municipal housing associations are to be supported through equity-relieving measures. The rent freeze is to be extended for four years. A group of experts is to draw up proposals for the harmonization of tenancy law regulations and the reform of the rent cap. The aim is to increase the regulation of index-linked rents, the letting of furnished apartments and short-term rentals in tight housing markets. Changes to the modernization levy are intended to promote economic investment and at the same time ensure the affordability of rents. The eligibility of the EH55 standard will be restored for a limited period of time in order to activate construction surpluses. The funds available for social housing construction are to be significantly increased and special funds made available for barrier-free and age-appropriate housing. Funding for young people's housing is also to be increased and the funding regulations for housing for trainees and students are to be opened up. Urban development funding is to be modernized and the funds available for this significantly increased. BIM is to be further developed as a central instrument for the digitalization of the construction industry. Finally, an independent body is to be set up to review the cost implications of DIN standards.

Energy

The coalition partners are sticking to the goal of climate neutrality in Germany by 2045 and the Paris Climate Protection Agreement. The goal of climate neutrality is being pursued with an approach bringing together climate protection, economic competitiveness and social balance and focuses on innovation. To achieve this goal, the coalition is focusing primarily on reducing CO2 and other greenhouse gases in Germany as well as offsetting negative emissions and certified CO2 reductions in non-European countries. The energy policy of the coalition agreement focuses on the promotion of renewable energies - using all the potential of renewable energies (solar, wind, bioenergy, geothermal energy, hydropower) and innovative technologies - and ensuring an affordable and reliable energy supply. A package of measures is proposed to reduce energy prices and support the energy transition. The government plans to reduce the electricity tax to the EU minimum and extend the electricity price compensation until 2030.

The European Green Deal and Clean Industrial Act should be further developed and, in particular, lead to a link between competitiveness and climate protection. Special relief (industrial electricity price) is to be introduced for energy-intensive companies that cannot be relieved in any other way within the scope of the possibilities under state aid law. Energy-intensive consumers without the potential to flexibilize are to be relieved as before. The gas storage levy is to be abolished for all.

The coalition is sticking to the phase-out path for lignite by 2038 at the latest.

An investment fund for energy infrastructure is to be set up to provide equity and debt capital for investments in energy infrastructure in conjunction with public guarantees and private capital.

Technology and industries

The promotion of technology and innovation is another focus of the coalition agreement. The aim is to invest in artificial intelligence and digital technologies in order to establish Germany as a leading location for technological developments. This also includes the introduction of a German fund to finance innovations and improve employee equity participation.

According to the coalition partners, Germany should be in the digital fast lane. The coalition's digital policy is aimed at sovereignty, innovation and social progress. Digital dependencies are to be reduced through the development of key technologies and the protection of digital infrastructures.

Administrative processes should be user-centered, digital and efficient. The goal is a fully digital administration with application-free procedures. Open interfaces and standards will be promoted in order to strengthen digital sovereignty. The expansion of data centers will also be promoted, including integration into the power grid and the use of waste heat.

As part of the digital infrastructure, the nationwide expansion of fiber optic networks and mobile networks is to be driven forward.

Future technologies such as artificial intelligence, quantum computing, robotics and microelectronics should be further promoted and advanced. This also includes the creation of a legal framework, such as liability rules for AI, which are being examined at European level.

Data protection is to be reformed - in the area of data protection supervision by bundling responsibilities with the Federal Data Protection Commissioner - as well as within the framework of the GDPR by simplifying matters for SMEs and associations.

The automotive and supplier industry is emphasized as a key industry and job guarantor. The coalition is committed to technological openness. A blanket statutory quota for the electrification of vehicle fleets is rejected. At the same time, the review of CO2 reduction targets for heavy commercial vehicles and trailers will be brought forward. The planned measures to promote electromobility include

• Tax benefits for company cars by increasing the gross price limit for e-vehicles to 100,000 euros
  
• Special depreciation for electric vehicles
• Vehicle tax exemption for electric cars until 2035
• Supporting low- and middle-income households in switching to climate-friendly mobility through funding from the EU Climate Social Fund
• Promotion of plug-in hybrid technologies (PHEVs) and electric vehicles with range extender (EREV)
  

The expansion of a nationwide, user-friendly charging network and a fast-charging network for cars and trucks will be accelerated. The promotion of commercial depot charging will be stepped up. A hydrogen charging infrastructure for commercial vehicles will also be established and zero-emission trucks will be exempt from tolls beyond 2026.

The prerequisites for the regular operation of autonomous driving are to be created and the development of battery cell production, including raw material extraction, recycling and mechanical engineering, is to be promoted.

The new coalition's industrial promotion activities will also focus on the chemical, pharmaceutical and biotechnology sectors as well as microelectronics, where investments will continue to be promoted under the European Chips Act and the IPCEI framework.

Trade and foreign trade

The coalition agreement's foreign trade policy focuses on strengthening international trade relations and promoting investment. A pragmatic and rule-based trade policy is sought in order to strengthen Germany as a business location. The "EU-only" principle should apply to trade agreements. Further trade and investment agreements are to be concluded. The EU's framework agreement with Chile, which has already been signed , should be ratified quickly, and the coalition also supports the EU agreements with Mercosur and Mexico as well as the EU's free trade negotiations with India, Australia and the ASEAN states.

A free trade agreement is also being sought with the USA in the medium term in order to avoid the threat of a trade conflict.

The deepening of trade relations with African countries is to be prepared as part of a new Africa strategy; the economic partnership agreements with Côte d'Ivoire, Ghana, Cameroon and the SADC EPA states are to be ratified before the end of 2025.

An amended Foreign Trade and Payments Act is to be presented at national level in the near future. The review procedures are to be accelerated, simplified and made easier to apply. Foreign investments that conflict with national interests in critical infrastructure and strategically relevant areas should be effectively prevented. Critical components in German infrastructure must meet the highest security requirements. In future, only components from trustworthy countries may be installed in sensitive areas of critical infrastructure.

The coalition also wants to make procedures in the area of competition and antitrust law faster and more efficient; it supports the effective enforcement of the Digital Market Act and aims to ensure that European sovereignty and security in European competition law, particularly in the area of merger control, are given greater consideration than before.

Outlook

A coalition agreement, like any other negotiated agreement, is a compromise and the result of intensive consideration by the partners involved. In this respect, it is not surprising that political observers and market participants are complaining that the coalition agreement lacks the necessary determination in many areas, as would have been hoped for in particular by business associations and representatives of business interests. It therefore remains to be seen whether the coalition agreement is the great success that was hoped for. The all-encompassing financing proviso contained in para. 1627 of the coalition agreement, according to which "all measures of the coalition agreement are subject to financing", is also viewed critically. Last but not least, the same applies to the coalition agreement as to action plans in companies: "Success is in the execution." Against this backdrop, it is to be hoped that the coalition partners will succeed in implementing the measures set out in the coalition agreement to increase Germany's competitiveness in a timely manner. We will of course keep you informed about legislative developments in the implementation of the program set out in the coalition agreement.