Germany plans imminent tax cuts to boost stagnant economy
The German government is planning tax cuts to help kick-start growth.
The government is looking at new tax credits for research, investment and electric company cars as well as cuts to corporation tax of one percent a year for five years from 2028 onwards, finance ministry spokesman Maximilian Kall told reporters.
"Everybody's aim... is to boost the economy now," Kall said. "Everybody's goal is to stimulate the economy, secure jobs, support companies and mobilise investment."
Germany's economy is struggling to emerge from a persistent slump, hit by high energy and labour costs at home as well as increasingly fierce Chinese competition and new trade barriers imposed by US President Donald Trump.
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The government officially forecasts zero GDP growth for this year after the economy shrank slightly in 2023 and 2024.
The government would look to get the measures passed as quickly as possible, Kall said, indicating that the cabinet would consider a draft bill on Wednesday.
"Intensive discussions" were underway with the aim of getting them passed by parliament before the summer break, Kall said.
On Saturday, the Handelsblatt business newspaper reported that the government estimated the cost of the measures at €17billion a year by 2029.
Local governments will suffer
The proposed changes were met with criticism from some opposition politicians.
"This will break the neck of many municipalities in Germany," deputy Green Party chairman Andreas Audretsch told RTL.
He said that while he was in favour of investment, he feared the companies would use the billions in tax cuts to pay dividends instead.
Robin Winkler, Chief Germany Economist at Deutsche Bank, said the plan would provide "a welcome short-term stimulus for the manufacturing sector" without being a silver bullet.
"Its impact on facilitating the broader structural transformation of the German economy is likely to be limited," he said in a research note.
Germany's new government under conservative Chancellor Friedrich Merz also plans to spend €500billion over the next 12 years to upgrade Germany's creaking infrastructure and give the economy a further boost.
But some economists have warned that the bumper spending package might not boost long-term growth by itself, saying it will also be necessary to pass reforms and to spend the money wisely.
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