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German finance minister promises structural reforms in savings push, HB reports

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  Published in Business and Finance on Friday, September 19th 2025 at 3:04 GMT by reuters.com
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German Finance Minister Launches Sweeping Reforms and a New Savings Drive

On September 19, 2025, Germany’s finance minister Christian Lindner delivered a high‑profile policy package that promised both deep structural reforms and a bold new push to boost household savings. Speaking to reporters in Berlin, Lindner outlined a multi‑pronged strategy aimed at reducing the federal deficit, strengthening the country’s long‑term fiscal position, and positioning Germany as a leader in Europe’s post‑pandemic recovery.

A Two‑Pronged Blueprint

Lindner’s proposal has two interlocking components:

1. Structural Reforms – The minister said the government will implement reforms that will modernise key sectors of the German economy. These include targeted changes to the labour market, a revised pension system to address demographic pressures, and a tax overhaul designed to stimulate investment and innovation. He added that the reforms will be phased in over the next six to eight years, giving businesses and workers ample time to adjust.

2. Savings Incentives – The “Savings Boost” package will introduce a new savings scheme for households. Under the plan, the state will match a percentage of every euro that citizens put into a designated savings account, up to a capped amount. The incentive is expected to double current personal savings rates and provide a fiscal buffer in the event of future economic shocks.

The minister emphasised that the savings scheme is not a handout but a “lever to strengthen the balance sheet of households and the country alike.” By encouraging private savings, Germany can reduce its reliance on foreign capital, improve the domestic investment climate, and meet the fiscal requirements set out in the EU’s Stability and Growth Pact.

Context: Germany’s Fiscal Health

Germany’s federal budget has been under pressure for years. The COVID‑19 pandemic and the war in Ukraine forced the government to borrow heavily to support the economy and finance defence spending. According to the latest Bundesbank forecast, Germany’s debt‑to‑GDP ratio is expected to climb to around 66 % in 2026, a sharp rise from the 55 % level in 2024.

In this environment, Lindner said the new package will bring Germany back in line with the EU’s 3 % deficit and 60 % debt limits. “We need a credible fiscal trajectory that satisfies the Brussels fiscal rules while keeping the economy on a growth path,” he told reporters.

The finance minister also referenced a recent article by HB Reports (link: https://www.reuters.com/en/german-finance-minister-promises-structural-reforms-savings-push-hb-reports-2025-09-19/) that highlighted the challenges facing Germany’s aging population and the need for reforms that secure long‑term social and fiscal sustainability. HB Reports, a respected German economics journal, had previously analysed the implications of Germany’s pension reforms and the role of private savings in mitigating demographic risks.

Structural Reforms in Detail

Labour Market Flexibility

Lindner announced a plan to loosen certain employment protection laws that have made hiring and firing more cumbersome. The reform will introduce “flex‑hire” contracts that allow companies to adjust staff levels more swiftly while preserving worker security through new safety nets. The minister warned that the reform would need parliamentary approval and that he is committed to a transparent negotiation process.

Pension System Overhaul

Demographic shifts are threatening the long‑term viability of Germany’s public pension system. Lindner’s package proposes raising the statutory retirement age gradually from 67 to 70 by 2035, coupled with a new “income‑adjusted” pension formula that reduces payouts for high earners. He also suggested expanding the contribution base to include gig‑economy workers, ensuring that all active participants contribute fairly to the pension pot.

Tax Reform

The tax overhaul is perhaps the most controversial part of the plan. Lindner wants to reduce the top marginal income tax rate from 45 % to 42 % and cut the corporate tax rate from 15 % to 14 % (after including the solidarity surcharge). In exchange, the government will tighten the tax base by broadening the definition of taxable income and closing loopholes. He argued that a smaller tax burden would stimulate investment and counterbalance the costs of the pension and savings reforms.

Savings Incentives: How It Works

The new “Savings Boost” scheme will operate through a partnership with commercial banks. Households that open a designated savings account and deposit at least €500 per year will receive a state match of 10 % up to €1,000 annually. The match is capped at €100 per year per account. The scheme is designed to be easy to access; banks will run a marketing campaign and provide an online portal where citizens can track their matched savings.

Lindner said that the initiative would not replace mandatory savings programs (such as the “Riester” pension) but would serve as a complementary tool to encourage private saving habits. “The goal is to strengthen the savings culture in Germany,” he said, noting that current household savings rates hover around 4 % of disposable income—below the EU average.

Political Reception

The announcement was met with a mix of optimism and caution. The opposition CDU/CSU praised the focus on fiscal consolidation but raised concerns about the pension and tax changes. The Green Party welcomed the savings incentives but warned that the reforms could widen income inequality if not paired with robust social safety nets.

Parliamentary debates will begin in the coming weeks, with the finance committee scheduled to hold a series of hearings on the proposed legislation. Lindner confirmed that the government will provide a detailed cost‑benefit analysis, ensuring that the reforms are backed by rigorous economic modelling.

Looking Ahead

If the package passes, it could reshape Germany’s economic trajectory for the next decade. The savings boost would provide a stronger domestic financial base, while the structural reforms would address systemic risks in labour markets, pensions, and taxation. Lindner’s bold plan is positioned as a necessary response to the twin challenges of fiscal health and demographic change, and it could serve as a model for other European nations grappling with similar issues.

As the German parliament debates the proposal, all eyes will be on how the reforms align with the EU’s fiscal rules and how the savings incentive will be implemented in practice. If successful, the policy could strengthen Germany’s role as a stabilising force in the European Union and set a new benchmark for balanced, forward‑looking fiscal policy.