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The German government has agreed a €7bn package of corporate tax relief, in a move aimed at reviving a stuttering economy and polishing the image of a three-party coalition weakened by months of squabbling.
The bill comes as concerns grow about the state of the German economy, which stagnated in the three months to June after shrinking in the previous two quarters, underperforming all its large rivals.
The IMF and OECD both expect Germany to be the world’s worst-performing leading economy this year.
The so-called Growth Opportunities Law, which will run for four years, was the centrepiece of a 10-point plan for boosting growth presented by chancellor Olaf Scholz on Tuesday during the first day of a two-day government retreat in Schloss Meseberg, a baroque palace outside Berlin.
However, the plan omits a proposal backed by the economy ministry to subsidise electricity prices for industrial companies and it was unclear whether the issue would be discussed at Meseberg. “Long-term subsidies are not a solution,” the text of the plan says.
Scholz’s fractious coalition of Social Democrats, Greens and the liberal Free Democrats (FDP) has been riven by disagreements over policy that have hit all three parties’ approval ratings. A recent poll by YouGov found 69 per cent of Germans do not consider the government capable of solving the country’s problems.
The tax relief bill, which aims to “improve Germany’s competitiveness” and “give new impulses for growth”, was unveiled by finance minister and FDP leader Christian Lindner earlier this summer. But it was blocked by Green families minister Lisa Paus in retaliation for his refusal to allocate more money to child benefit reforms spearheaded by her ministry.
The argument highlighted the deep ideological divisions between the left-leaning Greens and pro-business liberals. In the end, the ministers called a truce, announcing on Monday that they had reached agreement on the child benefit issue.
The deal paves the way for both the benefit reform and tax relief bills to be passed by the German cabinet on Wednesday and sent to the Bundestag.
The tax package is designed to incentivise investment and is targeted at the Mittelstand — the small- and medium-sized enterprises that form the backbone of the German economy.
It will introduce a tax allowance for investments, especially those designed to fight climate change and improve energy efficiency, and tax incentives for research and development. It also aims to boost the construction industry by introducing new depreciation allowances to incentivise investment in new housing.
Apart from the tax relief package, the 10-point plan contains little new. It includes a pre-announced Climate and Transformation Fund, worth €212bn, that will finance investment in electric vehicles, building refurbishment and decarbonisation of industry, as well as semiconductor manufacturing. Some €58bn will be made available in 2024 alone.
The government said it would also seek to speed up planning procedures, reduce bureaucracy and provide “secure and affordable energy” by expanding solar and wind energy capacity.
