Germany’s federal cabinet has approved a set of key economic measures, including extended tax exemptions for electric vehicles (EVs) and working pensioners, as part of Chancellor Friedrich Merz’s economic revival strategy. The move follows two consecutive years of recession and is aimed at stimulating growth while easing pressure on both consumers and industries.
The new proposal extends the motor vehicle tax exemption for electric cars until 2035, five years beyond the previously planned 2030 cutoff. The Finance Ministry stated that the extension will not only encourage consumers to transition toward cleaner vehicles but also strengthen Germany’s globally renowned automobile sector.
Finance Minister Lars Klingbeil emphasized that the policy is designed to “set the right incentives now so that we can get many more electric cars on the road in the coming years.” He noted that long-term tax relief would help make EVs more accessible, accelerate sustainable mobility, and secure jobs in the car manufacturing industry.
The Finance Ministry estimated that the measure would cost around €50 million ($58 million) in 2026, gradually increasing to €380 million by 2030, as more consumers switch to electric vehicles. Industry analysts say the move could also help Germany reach its carbon neutrality goals by 2045.
In a separate development, the cabinet also introduced a tax exemption for working pensioners, allowing retirees to earn up to €2,000 per month tax-free if they continue working beyond retirement age. Klingbeil described the reform as “a win-win for the economy and the labor market,” adding that experienced professionals can help offset Germany’s growing skills shortage while boosting national productivity.
“We are providing further impetus for economic growth in Germany,” he said. “This strengthens the labor market, it strengthens the economy, and it’s a real plus for anyone who wants to remain professionally active.”
Meanwhile, Health Minister Nina Warken announced a €2 billion annual savings plan within the health sector. The reforms aim to streamline public spending and prevent another rise in social security contributions, which have burdened taxpayers amid slow economic recovery.
The package of proposals now heads to Germany’s parliament for approval. If passed, the combined policies are expected to deliver significant fiscal relief for households and industries, while advancing Germany’s goals for sustainable development and labor retention.
Economists have described the measures as a pragmatic approach to reviving confidence in the German economy — blending fiscal responsibility with incentives for innovation and workforce participation.
