The leaders of Germany's ruling coalition reached agreement on a package of reforms after seven-and-a-half hours of talks on Wednesday, a source familiar with the negotiations told dpa late in the evening.
The size and scope of the package were not immediately clear. The leaders of Chancellor Friedrich Merz's conservative bloc - made up of the Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU) - and the centre-left Social Democrats (SPD) are due to present the details at a news conference on Thursday.
The coalition has spent months negotiating a broad package of reforms aimed at strengthening Germany's social security system, cutting taxes for households and helping revive Europe's largest economy after a prolonged period of weak growth. The meeting at the Chancellery had been seen as the decisive stage of the negotiations.
Some elements had already advanced before Wednesday's meeting. Legislation containing a savings programme for Germany's statutory health insurance system is already moving through parliament.
The coalition has also agreed to implement recommendations from an expert commission on pension reform largely without changes, with a timetable for the measures expected to be unveiled on Thursday.
Income tax reform emerges as key sticking point
Income tax reform proved to be the biggest sticking point in the negotiations. The coalition plans to reduce the tax burden on low and middle-income earners from January 1, 2027, but the scale of the planned tax cuts depends on how they will be financed.
The SPD had pushed for a higher top rate of income tax and increased inheritance taxes to help fund the reforms, proposals rejected by the conservative bloc. Other options discussed included raising a surcharge on high earners, increasing value-added tax, cutting subsidies or reducing government spending.
By contrast, negotiations over cutting bureaucracy progressed smoothly, and the coalition is expected to announce a range of measures aimed at reducing red tape for businesses and citizens.
Ahead of the talks, Merz said he expected the package to represent "a major step forward" in modernizing Germany, while adding there would be no single "big bang" solution. He said the government would continue its reform agenda beyond the summer.
The reform package is politically important for the coalition after an earlier attempt to reach agreement collapsed following a weekend of negotiations shortly after Easter. The failure exposed divisions within the government, while support for the coalition parties has continued to slide in opinion polls.
The reforms are seen as an important test of the coalition ahead of state elections in eastern Germany later this year.
