Firing Up the Economy: Cabinet Endorses "Investment Fuel" Package for Businesses
Government endorsees financial enhancement for businesses
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The federal government has given the thumbs-up to a package designed to fire up the economy. The goal? Putting the economy back on its growth track. Two industry experts have chimed in, but there could still be some pushback from the federal states.
The new coalition of Union and SPD has signed off on an initial multi-billion euro tax initiative to reignite the economy. The cabinet has given the green light, as announced by the Ministry of Finance. The "Investment Fuel" package aims to supercharge businesses by approximately 46 billion euros between 2025 and 2029. The federal government, states, and municipalities must plan for lowered tax revenues in the same ballpark, which may lead to resistance in the Bundesrat. The package encompasses:
- Super-depreciation of 30% each annually from 2025 to 2027 on eligible investments
- Reduction of the corporate tax rate by one percentage point annually from 2028 for five years
- "Electromobility Fuel Booster," which not only increases the price cap from 75,000 to 100,000 euros per vehicle but also offers a 75% depreciation option in the vehicle's first year of acquisition
- Research funding increased via tax breaks
The first parliamentary debate on the package is slated for Thursday. If all goes well, all critical parliamentary decisions could be finalized before the summer break.
"Promising Move"
Tobias Hentze, tax expert at the Cologne Institute for the German Economy, heralded the move as a promising sign that the government is sticking to its commitments. "Accelerated depreciation works because it sets targeted incentives for earlier and higher investments. However, it's essential to note that it represents only a temporary effect." Currently, the corporate tax burden in Germany stands at approximately six percentage points over the average of OECD industrial countries and nine points above the EU average. "The planned reduction of the corporate tax rate in 2028 should occur sooner."
Politics Tax Breaks for Businesses Investment Now Program Strikes Again An open question is the approval of the Bundesrat, Hentze suggested. "While the states can fund decreased revenues through the modification of the debt brake, the situation for municipalities is much more precarious. They would bear around one-third of the relief, around eleven billion euros between 2025 and 2028. However, their share of tax revenues stands at a mere 15%. The disproportionate burden risks driving many municipalities deeper into the red."
Simon Pex of the participation company Carlyle highlighted a shift in attitude. Germany and Europe are once again attracting investor interest, he stated. The newly elected federal government has the potential to generate economic growth once more. "Germany could be an appealing location for investment opportunities in the next decade."
[1] https://www.wirtschaftswoche.de/politik/wirtschaftspolitik/regierung-koalition-steigt-zusatzausgaben-zur-wirtschaftsbelebung-von-46-milliarden-euro-auf-28689665.html[2] https://www.handelsblatt.com/wirtschaft/preise-steuern/graph-verluste-steigen-bei-deutscher-wirtschaft/26916056.html[3] https://www.sueddeutsche.de/wirtschaft/kabinett-beschloesst-steuerpaket-der-firmen-schon-14-milliarden-euro-in-den-haendes-konjunkturstimulator-1.5850087[4] https://www.wirtschaftswoche.de/politik/wirtschaftspolitik/bundesrat-kritisiert-kerner-stimulator-30687452.html[5] https://www.az-verlag.de/economic-focus/energiepolitik/grune-programm-aus-sicht-der-energiewirtschaft-228269/
The "Investment Fuel" package, endorsed by the cabinet, aims to spur businesses by providing tax breaks through measures such as super-depreciation, corporate tax rate reduction, and electromobility incentives. However, the package may face resistance in the Bundesrat due to the projected lowered tax revenues for the federal government, states, and municipalities.
Tobias Hentze, a tax expert, praised the move as a step toward fulfilling government commitments, but expressed concern about the potential disproportionate burden on municipalities, which may be forced to bear a significant portion of the relief despite contributing a small percentage of tax revenues. Meanwhile, Simon Pex of Carlyle sees the newly elected federal government as potentially revitalizing economic growth in Germany, making it an attractive location for investment opportunities.
