The 34 measures unveiled by and the governing coalition include cuts to income tax for low- and middle income families, an overhaul of the creaking pension system, tougher rules for employees' sick leave and a reduction of the country's stifling bureaucracy.
"These reforms all have one goal: we're setting out into the future," Merz said on Thursday.
"We're strengthening ourselves so that we can live well in these new times."
Merz's coalition of conservative and progressive parties took office just more than a year ago with pledges to reform and turn around Germany's sluggish economy, Europe's biggest.
It has since become deeply unpopular, in part because of perceptions that it has squabbled but so far achieved little.
Merz is trying to cut his government coalition free from that negative reputation.
"From the very beginning, we set an agenda with a single goal in mind: we want to get Germany back on track. It is now clear that this is possible," the conservative chancellor said.
Germany's economy returned to modest growth in 2025 after shrinking for two years in a row.
The government expects underwhelming growth of 0.5 per cent in 2026, a figure that has been pushed down by the fallout from the war in Iran.
Germany's economy faces high production costs, lagging private investment and increasingly costly health and pension systems caused by an aging population.
On Thursday, the government coalition leaders said the tax cuts, once fully implemented in 2028, would give an annual tax break of about 600 euros ($A990) for a family with two working parents, two children and a total taxable income of 60,000 euros.
The tax relief will be mainly funded by raising the top rate of tax to 47 per cent from 45 per cent for the highest earners with an annual income of 280,000 euro or more.
The pension system reform would include gradually raising the retirement age, currently between 65 and 67 years depending on the number of years worked, in line with life expectancy.
The tougher rules for sick leave would no longer allow employees to call in sick to work for up to three days without seeing a doctor or call up the doctor and ask for a sick leave letter of one week without actually seeing the doctor.
Instead, employers would be able to ask for a doctor's certificate from the first day a person is on sick leave.
Merz had repeatedly complained that the rate of sick leave is too high in Germany, harming productivity.
Standing alongside Merz, Finance Minister Lars Klingbeil said the government was taking a tougher course against China and would protect companies from unfair competition.
When it comes to Germany's runaway bureaucracy, various reporting and documentation requirements are to be eliminated, and data protection is to be reduced to the European minimum, the government said, adding that there would also be less red tape when it comes to filing tax returns.
The government aims to cut staffing by eight per cent in federal ministries through digitisation.
Alice Weidel, the co-leader of the populist-nationalist Alternative for Germany party, which leads in opinion polls, derided the reform package.
On X, she called the measures an "even more left-wing redistribution, and minimal compromises that don't deserve to be called 'reforms'."
Nonetheless, Merz appealed to all Germans to "support us in carrying out the reforms that are now necessary".
with Reuters
