Germany Implements €7 Billion Tax Cut to Revitalize Sluggish Economy

30 Aug, 2023

Germany Implements €7 Billion Tax Cut to Revitalize Sluggish Economy

Putting aside weeks of internal disputes, Germany's coalition government reached a consensus today on a €7 billion tax relief package for corporations, aimed at revitalizing the sluggish economy. Chancellor Olaf Scholz termed it a significant boost for the country.

An earlier effort to pass the legislation, known as the "Growth Opportunities Law," faced obstruction from Greens Family Minister Lisa Paus. Paus pushed for €12 billion dedicated to a new child support benefit. Ultimately, the agreed-upon package will remain in effect for four years.

The legislation draft, as revealed by Reuters, indicates that in its first year, the tax cuts will lead to a revenue shortfall of €2.6 billion for the federal government, €2.5 billion for state governments, and €1.9 billion for municipalities.

"We are deliberating on how to achieve a substantial boost," stated Scholz during the two-day cabinet retreat at Schloss Meseberg, a baroque castle outside Berlin. He emphasized that the German economy has untapped potential.

While the stimulus package is relatively modest considering the size of Germany's €4 trillion economy, it arrives against a backdrop of increasing public discontent with the coalition's performance. A Forsa poll indicated that 61% of respondents were so fed up with the internal conflicts within the coalition that they had stopped paying attention.

The initial failure to pass the growth package, championed by liberal Finance Minister Christian Lindner, signaled concerns about the viability of governing a coalition consisting of two socially-minded leftist parties and one economically liberal party.

The path to passing the growth package was smoothed out when both sides agreed to reduce the scale of the planned Child Basic Insurance to just over €2 billion.

The legislation offers incentives for companies to invest in environmentally friendly initiatives, introduces tax benefits for research, and allows businesses to offset more losses against profits from other fiscal years.

With the German economy having stagnated in the second quarter, displaying no signs of recovery from a winter recession, it solidifies its position as one of the world's weakest major economies.