By Bertrand Benoit

BERLIN — Germany unveiled a broad economic overhaul on Thursday in an attempt to jolt its comatose economy back to life and boost the government's approval ratings ahead of elections in the fall.

The 34 measures, including tax and welfare benefit cuts, a relaxation of labor market rules, the lifting of bureaucratic burdens, and steps to encourage investment in fast-growing sectors, will help "overcome Germany's structurally weak growth," said Chancellor Friedrich Merz.

"I understand the longing for the old, for the past, but we cannot hide in the past," said Merz. "We must start longing for the future. These reforms have one goal: We are setting off into the future."

Germany's export-reliant economy was hit hard by the rise of China as a manufacturing superpower, which has gobbled up market share from Germany's flagship automotive and engineering sectors. President Trump's punitive tariffs on European goods have squeezed many German companies out of another fast-growing and lucrative market.

But Germany's misfortunes are also partly homemade, economists say. Berlin has let regulations, labor costs, energy prices and taxes creep up and its infrastructure decay due to underinvestment over the past 20 years, eroding the economy's competitiveness.

The package is partly an attempt to catch up with its neighbors, which have cut red tape and overhauled their tax systems and labor markets to make them more business friendly.

What the Changes Include

  • Taxes: The government will cut income-tax rates for those classified as low or average earners, resulting in EUR10 billion a year in savings for those taxpayers. This will be partly funded by tax rises for those earning more than EUR250,000 a year and cuts to various tax breaks.
  • Welfare State: Retirement age will rise gradually to 70 from 67 and incentives to retire early will be scrapped.
  • Labor Market: It will become easier for companies to fire top earners and hire workers on a temporary basis -- a longstanding demand in the startup scene. New tax incentives will encourage workers who have been laid off to find a new job quickly. The government will crack down on sick leave to curb rocketing sick leave rates. Tech companies and sectors under pressure -- cars, steel, chemicals and engineering -- may be exempted from more labor market rules.
  • Bureaucracy: In one of its most radical moves, the government said most requirements for companies to provide information for government statistics will be scrapped, data privacy rules relaxed for small businesses, and the implementation of some EU rules streamlined. Planning procedures to expand and digitize the electric grid will be sped up. Administrative applications for things such as construction permits and trading licenses will be generally considered granted if left unanswered for more than four months.
  • Trade: Berlin will push the European Union to sign new trade agreements while backing Brussels' proposed barriers, including antidumping and antisubsidy tools, to curb the flood of cheap Chinese goods.

What's the Reaction From Businesses?

The initial reaction was mixed. The VDMA federation of capital goods manufacturers called the package a good start but insufficient, saying its tax provisions could raise costs on many small company owners.

While far from radical, the package shows "that Germany is prepared to address longstanding structural challenges and improve its long-term competitiveness," said Marcus Berret, global managing director at management consulting firm Roland Berger. "The focus should now be on delivering these reforms quickly and then keep going"

What It Means for the Embattled Government

Thursday's announcement is something of a political Hail Mary for a government that has been on the defensive almost since it took office just over a year ago.

The government's ratings took their latest plunge earlier this year, when the coalition partners failed to agree on a previous package of reforms. The far-right Alternative for Germany has now overtaken Merz's Christian Democratic Union in all opinion polls, and the chancellor has become one of post-World War II Germany's most unpopular leaders.

Now he is making the bet that voters will honor more decisive action, even though the package imposes more burdens on certain groups, such as better paid employees and future retirees.

Write to Bertrand Benoit at bertrand.benoit@wsj.com