Germany unveils tax breaks to boost stagnant economy
"It's important to send a clear signal in support of our country's economic strength and competitiveness," Finance Minister Lars Klingbeil said at a press conference.
Klingbeil he said he hoped the package, worth a cumulative 45.8 billion euros, could be pushed through parliament by the end of the month.
Under the plans, Germany's corporate tax rate would fall by one percent a year from 2028 to reach 10 percent, down from 15 percent.
Companies would also be able to deduct 30 percent of the cost of new machinery and equipment from their tax bill between 2025 and 2027, and electric company cars would receive preferential tax treatment.
Economy Minister Katherina Reiche said in a statement the plans would send an important "signal" to firms that Germany was open for business.
"Germany is back," she said. "Today's cabinet decision means we are going for growth and increased competitiveness, and more measures will come."
Germany's economy has struggled in recent years in the face of high production costs at home, increasingly fierce Chinese competition and growing global trade tensions fired by US President Donald Trump.
READ ALSO:
Trump extends deadline for tariffs on goods from Germany to July 9th
The new government under conservative Chancellor Friedrich Merz has already set out plans for a 500-billion-euro infrastructure fund in a bid to put the economy back on the right track.
But analysts have warned that money alone will not be enough to restart Germany's economic motor without structural reforms.
Commenting on an earlier outline of the tax plan, Deutsche Bank economist Robin Winkler said the deductions 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.
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Some of Germany's regional governments -- which would have to approve the plans in the parliament's upper house -- have voiced concern at the cost, with 28 billion euros in lost revenue forecast for them between 2025 and 2029.
"These billions in investments will go up in smoke if the states and municipalities see holes in their core budgets," Anke Rehlinger, the leader of the Saarland region, said in an interview with news website
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Local Germany
5 hours ago
- Local Germany
OPINION: It's high time Germany scrapped the rent brake
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After observing Germany's increasingly dysfunctional housing market for almost two decades now, however, I'd say: probably not. In fact, my creeping suspicion is that rent controls are ineffectual at best and, at worst, may actually be contributing to rises. Wait, so you think the Mietpreisbremse is making rents higher now…? No, please: hear me out! Ineffective on its own terms First off, experts agree that, even on its own terms, the Mietpreisbremse is ineffective – that's why those in favour of it usually also argue that it needs to be more stringent. In their current form, controls only apply to new rental contracts, and come with enough loopholes and exceptions that any landlord looking for one will find a semi-legal workaround. The easiest option is to either limit the length of the rental contract to less than one year or to part-furnish the letting – which has led to a market where unscrupulous operators are now demanding top-dollar for sticking a flat-pack wardrobe in the bedroom and then coming back for more a year later when the contract needs to be renewed. READ ALSO: Four scams to be aware of while navigating Germany's rental market Theoretically, this shouldn't be happening, of course. In Germany's tenant-friendly housing law, leases can only be time-limited if there is good reason – e.g. if the renter needs a short-term let for professional reasons – and any furnishings need to be high-value enough to warrant higher prices. Advertisement Yet for legal protections to apply, tenants have to know – and exercise – their rights. And as my colleague Paul Krantz has explained , even in simpler cases where the rent has been set too high on a standard lease, many who could challenge it do not – for lack of understanding, lack of time and energy, or lack of confidence confronting a potentially Scrooge-like landlord. A man hangs up his keys in a Berlin apartment. Photo: picture alliance/dpa/dpa-Zentralbild | Kira Hofmann Then there are the grey areas where well-meaning letters can easily end up unintentionally contravening the Mietpreisbremse . Under the rule, rents should not exceed a local average price by more than ten percent in tight housing market areas. But local rental averages are determined in rent price indexs – Mietenspiegel – which themselves are for more complicated than many assume: this is Germany, after all. 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Setting the wrong incentives Why wouldn't they try? After all, once they are out of Mietpreisbremse territory, the sky is the limit – so the clear incentive for landlords is to look for any way to get an apartment out of regulatory purview and then set rent at market rates. Or, simply, to invest in new-builds, which are wholly exempt from rental controls – and rarely available for under €20 per square metre. Advertisement In this way, the Mietpreisbremse is entrenching a two-speed rental market where high-earning tenants with good credit records have their pick of snazzy new-builds and souped-up Altbau flats while those lower down the socio-economic scale are left fighting for increasingly pricey scraps. As I've written before, it's a trust issue : anyone with a flat to let is now acutely aware that its rental value is capped even as inflation, wages, and market values aren't. So increasingly, landlords max out the 10% the Mietpreisbremse allows – and then make use of all legal options to keep upping the rent. That is one reason so many new rentals are now using the unloved Staffelmiete (defined raises every year) and Indexmiete inflation-linked contracts, which allow for increases of 15 or 20 percent in a three-year period. Previously, it was standard practice – especially among ethically-minded private owners – to issue standard contracts and leave rents more or less untouched for sitting tenants before upping them on re-letting. Now, as rents continue to soar but the Mietpreisbremse limits raises, many private landlords are, perversely, having to hike rents in existing leases to avoid trouble with the Finanzamt further down the line: not charging market rates is, of course, considered a form of tax avoidance. These in-tenancy rises then drag up the averages on which the 10 percent maximum is calculated, and so the 'rent brake' is being applied at the same time as the price accelerator. Advertisement Overly-complex – and potentially unconstitutional This reveals the fundamental problem with rental controls. Like it or not, Germany's rental market is just that – a market. Yet by selling off swathes of social housing stock over recent decades, many major cities have deprived themselves of the best means of slowing price rises in this market -- offering affordable rental accommodation to those who need it. Instead, they now find themselves shelling out huge sums in housing benefit – Wohngeld – to low-income households and hoping that middle-income tenants have the gumption and courage to apply the complicated Mietpreisbremse themselves. All of this, meanwhile, puts the majority of well-meaning landlords at a disadvantage and encourages those with the ways and means to maximise revenue (or to simply ignore the system). No wonder rents are going up faster than ever. A view of flats in Hamburg. Photo: picture alliance/dpa | Daniel Bockwoldt So for me, it's simple: the Mietpreisbremse should be scrapped. Even in this market, asking rents currently can't go much higher – prospective tenants can no longer afford them on their wages – and there is every reason to suspect that the legislation may actually have pushed prices to this point faster than would otherwise have been the case. This, in turn, is contributing to stasis as people are forced to stay put and make do , with vacancies in most cities far below the 1 percent generally considered the minimum necessary for a functioning rental market. What is more, the Mietpreisbremse will eventually become unconstitutional: in our market economy, the state is not allowed to use price-fixing legislation to force a lasting devaluation of assets. Advertisement Thus far, Karlsruhe has accepted the rent controls because they are temporary, being implemented for defined periods of time. Yet when this planned extension reaches its term in 2029, the measures will have been in place for almost 15 years – making them 'temporary' in the same way that the exceptionally ugly shelving unit I 'temporarily' put in my hallway when we moved in 2010 is still 'temporary' one-and-a-half decades on. Mercifully, we haven't had our rent raised since then. Then again, we moved in before the Mietpreisbremse and paid top-whack in the first few years. That's how things used to work. Our newer neighbours, however, all seem to get regular rent increases. Call me crazy, but…
DW
19 hours ago
- DW
Trump and Musk trade barbs in public falling out – DW – 06/06/2025
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DW
a day ago
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Trump and Musk trade barbs as alliance ruptures – DW – 06/05/2025
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