Economists warn German pension reform may trigger tax hikes

Several economists have warned that the German government's newly approved pension package could lead to tax increases and slow the country's economy.

Economist Veronika Grimm told newspaper Bild that "higher non-wage labour costs, tax increases and expanded borrowing are to be expected."

She said such measures would further weaken Germany's economy and were highly concerning.

Achim Wambach, president of the Leibniz Centre for European Economic Research (ZEW), also expects taxes to rise. "There is a high risk that the pension package will have to be financed through higher taxes in the medium term," he told the paper.

Wambach said it would therefore be up to the pensions commission to present proposals for fundamental reforms.

Stefan Kooths, head of economic research at the Kiel Institute for the World Economy, also warned that the planned increase in pension benefits would ultimately require either tax hikes or spending cuts. "It is likely to be tax increases, which will further weigh on economic momentum," he said.

German lawmakers approved a controversial pension reform package proposed by Chancellor Friedrich Merz's governing coalition on Friday, following months of political wrangling.

If the Bundesrat, or upper house of parliament, approves the bill on December 19, the law can enter into force on January 1.

The reforms aim to stabilize pension levels, as well as expand pensions for women who were out of work for years while raising a family.