Coalition Treaty of the Next German Government

 

After nearly four weeks of negotiations, the lead negotiators of conservative CDU/CSU and social-democrat SPD have agreed on a coalition deal. 

 

Key Elements

• Corporate tax reform:
  • “Investment booster”: Declining balance depreciation of up to 30% for investments in equipment in the years 2025–2027
  • Gradual reduction of corporate income tax by 1 percentage point annually from 2028 onward (in five steps)
• Reduction of electricity tax to the EU minimum
• Simultaneous relief on grid charges
• Introduction of an “industrial electricity price” for energy-intensive industries
• Introduction of an investment fund (“Germany Fund”), with a target volume of €100 billion, acting as an umbrella fund to close financing gaps in growth and innovation capital, especially for SMEs and scale-ups
• Abolition of the German Supply Chain Due Diligence Act (LkSG) in favor of the EU CSDDD
  • Immediate repeal of reporting obligations under the LkSG
  • Until the CSDDD comes into force, existing due diligence obligations will not be sanctioned (except in cases of severe human rights violations)
• “Immediate Program for Bureaucracy Reduction”: a 25% reduction in bureaucratic costs, including the removal of the receipt printing obligation and the suspension of statistical reporting requirements
• Technology-neutral climate policy: Focus on CCS/CCU, incentives for new gas-fired power plants, no formal review of grid expansion targets, but multiple references to “efficiency”, and acceleration of the hydrogen economy
• Pragmatic implementation of the circular economy strategy
• Automotive industry: Strong emphasis on technology neutrality, continued support for e-mobility (purchase incentives, tax benefits), and no legal quota
• Establishment of lead markets for climate-friendly or climate-neutral products (e.g., via quotas for low-emission steel production)
• Targeted AI Offensive:
  • Launch of a 100,000 GPU program (“AI Gigafactory”), support for industry-specific large language models and test environments, especially for SMEs and start-ups
  • Innovation-friendly, low-bureaucracy implementation of the EU AI Act
  • AI promotion also in critical and industrial sectors (e.g., automotive, health, defense)
  • Integration of AI into public administration through automation, aiming for an “administrative revolution”
• Further development of the National Cybersecurity Strategy: Strengthening the Federal Office for Information Security (BSI) to become the central hub for IT and cybersecurity
• Minimum wage: 15 €/hour by 2026 is considered realistic, but no binding commitment
• Federal Fair Pay Act: Applies to all federal tenders from €50,000 onward; for innovative start-ups from €100,000 and only for four years post-founding
• Digitalization of public administration: Mandatory citizen accounts, digital IDs, and application-free processes to be introduced
• Revision of minimum income scheme (“Bürgergeld”): To be replaced by a “new scheme for job seekers” with a stronger focus on job placement, incentives and obligations, stricter sanctions, and benefit withdrawal for refusal to work
• Weekly maximum working time: Instead of daily maximums, includes flexible working hours in line with the EU Working Time Directive, and trust-based working time models remain in place
• Tax-free overtime bonuses: Overtime pay beyond standard full-time (as defined in collective agreements) will be exempt from taxation
• Introduction of the “Active Pension”: Wages up to €2,000/month remain tax-free for those who choose to work beyond retirement age
• Social security contributions: No reduction announced; however, several measures aim to stabilize contributions 

 

Issue Areas

The coalition agreement between CDU/CSU and SPD also includes major shifts in healthcare, migration, and domestic security policy.

In healthcare, a comprehensive reform of the long-term care sector aims to relieve caregiving relatives, strengthen outpatient care, and simplify access to benefits. The electronic health record will become gradually mandatory starting in 2025 to improve digital infrastructure in the healthcare system.

In immigration policy, the coalition implements a fundamental shift: The goal is a significant reduction in irregular migration and stronger enforcement of deportations. Deportations to Afghanistan and Syria will be reinstated, initially focusing on criminal offenders and dangerous individuals. Family reunification for those with subsidiary protection will be suspended for two years, and the “Western Balkans regulation” will be capped at 25,000 people per year. Federal departure centers and permanent detention for dangerous individuals are planned. Additionally, the government is pushing for stricter return policies, including expanded detention for deportation.

In the field of domestic security, the agreement introduces a mandatory IP address retention, enhances biometric search capabilities for law enforcement, and tightens criminal law: repeated convictions for incitement to hatred may now result in loss of passive voting rights.

Allocation of Ministries 

 

A Reflection of the Election Outcome 

On key issues, the agreement bears the imprint of the CDU/CSU. This is particularly evident in economic and regulatory policy: the abolition of the minimum income scheme (“Bürgergeld“), the introduction of a weekly maximum working time, tax-free overtime pay, and the so-called “Active Pension” were all central demands of the CDU/CSU’s campaign. Likewise, the reduction of corporate tax, special depreciation allowances, and the repeal of the German Supply Chain Due Diligence Act reflect the CDU/CSU’s economic policy agenda. The same applies to migration policy: the suspension of family reunification, the resumption of deportations to Afghanistan and Syria, and the cap on the “Western Balkans regulation” all mirror core conservative positions.

The SPD, on the other hand, was able to assert itself primarily in a few areas of social compensation—such as the introduction of a Federal Fair Pay Act, the expansion of investment funds, and elements of long-term care policy. In the area of pensions, the SPD merely managed to defend the status quo. A binding increase of the minimum wage could not be achieved.

The SPD scores concerning the allocation of ministries. Despite receiving only about half the vote share of the CDU/CSU, it has secured a disproportionately large number of key portfolios. Unsurprisingly, the SPD used its right of first access to take the Finance Ministry, a strategic power center. Another success for the Social Democrats is the integration of the Labor and/or Social Affairs portfolio into the Economic Affairs Ministry, which would have enabled a structural reform under CDU leadership, not to take place.

The creation of a new Ministry for Digitalization has been agreed upon—a long-standing demand across party lines. Whether this new body will become a true driver of innovation or be weakened by turf battles with established ministries remains to be seen. 

 

Time Until May: A Window for Strategy Development 

The coalition agreement is meant to send a strong message of momentum and renewal. While most key personnel decisions in the future government and Bundestag are still pending, this is precisely the moment for companies and public affairs professionals to systematically assess the announced political initiatives in terms of their own risks and opportunities. At the same time, concrete strategies should be developed to help shape the implementation process, through position papers, dialogue formats, or strategic partnerships. In addition, now is the time to activate and expand networks with political decision-makers to ensure a “flying start” once the new government begins its operational work in May. 

 

Outlook

The CDU is expected to formally approve the agreement at a small party convention on April 28. The SPD will conduct a membership vote through the end of April. Assuming both parties give their approval, Friedrich Merz is expected to be elected as the tenth Chancellor of the Federal Republic of Germany by the Bundestag on May 7. 

 

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