German officials have agreed to a €7bn corporate tax relief package, in an effort to revive a stagnant economy and improve the image of three-party coalition that has been weakened by months’ worth of bickering.
The bill is being released as concern grows about the state of the German economy. the economy has stagnated in three months up to June, after shrinking for the two previous quarters and underperforming its major rivals.
Both the IMF and OECD expect Germany to be one of the worst performing leading economies in this year.
On Tuesday, during the first of two days of a government retreat at Schloss Meseberg outside Berlin, chancellor Olaf Schholz presented a 10-point growth plan.
The plan does not mention a proposal that was backed up by the Economy Ministry to subvention electricity prices for industrial firms. It is also unclear if the topic will be discussed in Meseberg. The plan’s text states that “long-term subsidies aren’t a solution.”
Scholz’s fractured coalition of Social Democrats and Greens, along with the liberal Free Democrats(FDP), has been torn apart by policy disagreements that have hurt all three parties. According to a recent YouGov poll, 69 percent of Germans don’t think the government is capable of solving Germany’s problems.
Christian Lindner, FDP leader and finance minister, unveiled the tax relief bill earlier this summer. It aims to improve Germany’s “competitiveness” and give “new impulses for growth”. Lisa Paus, the Green Families Minister, blocked it in response to his refusal to provide more funding for child benefit reforms spearheaded her ministry.
The argument revealed the ideological divides between Greens who lean left and liberals who are pro-business. The ministers finally called a truce and announced on Monday that an agreement had been reached on the issue of child benefits.
The agreement paves way for the German Cabinet to pass the tax relief and benefit reform bills on Wednesday. They will then be sent to the Bundestag.
The tax package aims to encourage investment in the Mittelstand, the small and medium enterprises that are the foundation of the German economy.
The government will also introduce tax incentives to encourage research and development and investments that are geared towards combating climate change. The government also wants to stimulate the Construction Industry through new depreciation incentives to encourage investment in new housing.
The 10-point plan is not very innovative, except for the tax relief package. The plan includes an already announced Climate and Transformation Fund worth EUR212bn that will finance investments in electric vehicles and building refurbishment, decarbonisation of the industry and semiconductor manufacturing. Around €58bn of funding will be available by 2024.
The government also said that it would speed up the planning process, reduce bureaucracy, and provide “secure energy at affordable prices” by increasing solar and wind power capacity.