Grand 46 Billion Euro Aid: Cabinet Endorses Business-Boosting "Investment Leap"
Government endorses financial stimulus for businesses
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The federal cabinet has backed a bill encompassing relief measures to support the nation's economy. The government is committed to bolstering growth. Two analysts lauded the move, albeit it could prompt disagreement from the federal states.
The new ruling coalition of Union and SPD has endorsed a preliminary multi-billion euro tax relief plan to revive struggling businesses. The cabinet has given the nod, according to the Ministry of Finance. This "Investment Leap," due from 2025 to 2029, stands to help businesses save nearly 46 billion euros. The federal government, states, and municipalities must plan for reduced tax revenues of roughly this magnitude, leading to potential opposition in the Bundesrat. The bill outlines:
- 30% "Super-Depreciation" on investments between 2025 and 2027
- Lower corporate tax rate by one percentage point per year from 2028 for five years
- An "E-Mobility Leap," with greater price caps from 75,000 to 100,000 euros per vehicle and a 75% first-year depreciation option for the acquisition
- Amplified government support for research advancement
A parliamentary debate on the package is set for Thursday. Assuming swift progress, critical parliamentary decisions could be finalized during the summer recess.
"Beacon of Hope"
Tobias Hentze, a tax expert at the Cologne Institute for the German Economy, welcomed this development as a beacon of hope that the government is keeping its promises. "Progressive depreciation encourages because it sets specific investment incentives. However, it's merely a fleeting impact." Currently, corporate tax burden in Germany is approximately six percentage points above the OECD average and nine points above the EU average. "The anticipated reduction of the corporate tax rate in 2028 should occur sooner."
Hentze also highlighted the Bundesrat's approval as an open issue. While states can handle lower revenues via the debt brake alteration, the situation for municipalities is far more challenging. They would need to handle around 11 billion euros of the relief—a third of the total—from 2025 to 2028. Yet their revenue contribution is just 15%. The disproportionate burden might lead many municipalities further into debt.
Simon Pex from Carlyle talked about a shift in sentiment. Germany and Europe are gaining traction among investors again, Pex said. The new federal government can stimulate economic growth once more. "Germany could offer attractive investment opportunities for the coming decade."
Source: ntv.de, rog/rts
- Federal Government
- Economic Stimulus
[1] https://www.bundesregierung.de/breg-de/themen/wirtschaft-i/neustart-mit-dem-klimaschutz-und-die-klimaneuarteneuerung-sechs-schritte-zu-einer-gruneren-wirtschaft-2751464
[2] https://www.bundesfinanzministerium.de/Content/DE/Service/Informationen/BMF-Pressemitteilungen/2023/2023-03-15-Drucksache-11725.html
[3] https://www.bundestag.de/dokumente/textarchiv/2021/22/141-227730-193.php
- The federal government's endorsement of the tax relief plan, aiming to save businesses nearly 46 billion euros, is a significant part of the new "Investment Leap" policy, which includes measures such as a lowered corporate tax rate and amplified government support for research advancement, as outlined in the bill.
- The pledge to foster economic growth through the tax relief plan, which could lead to reduced tax revenues for the federal government, states, and municipalities, might encounter opposition in the Bundesrat, especially considering that municipalities would need to handle around 11 billion euros of the relief—a third of the total—from 2025 to 2028, a significant burden given their 15% revenue contribution.
