Decision on Economic Stimulus Packages to Be Swiftly Reached by Allied Parties
Germany's newly formed coalition government has outlined a series of economic relief measures aimed at stimulating growth and easing burdens on businesses. Federal Chancellor Friedrich Merz (CDU) indicated that initial decisions regarding these relief measures should be made by the summer holidays, following a meeting of the coalition committee in Berlin. Merz emphasized the need for swift action, stating, "Now it's full steam ahead."
The economic relief measures focus on tax incentives, bureaucracy reduction, and business investment stimulation. One key initiative is the proposed reintroduction of degressive depreciation for equipment investments, which would allow companies to write off a larger portion of an asset’s cost in the early years of its use, encouraging quicker capital expenditure.
In addition, a targeted "investment booster" program is planned to operate from 2025 to 2027 to incentivize corporate investments. The corporation tax rate is set to be gradually reduced from 15% to 10% by 2032, further easing the tax burden on businesses. Furthermore, income tax reductions are planned for the mid-legislative period to ease burdens on small and medium incomes, while tax incentives for longer working hours and reinstatement of a reduced VAT rate of 7% for the catering sector are scheduled to begin in 2026.
Reducing bureaucracy and deregulation are also prioritized by the coalition. Efforts to accelerate business activities include speeding up approval processes for infrastructure and energy projects and eliminating a national supply chain law, which may reduce regulatory complexity for companies. A law for establishing a multi-billion euro fund for infrastructure investments is also planned to support economic growth.
The coalition also aims to lower electricity taxes to reduce energy costs for companies, primarily benefiting energy-intensive industries. Additionally, the coalition reaffirms its commitment to the social market economy and climate neutrality goals by 2045, promoting a balance between economic support and sustainability commitments.
In summary, the coalition agreement combines targeted tax relief, enhanced depreciation allowances, reduction of bureaucratic hurdles, and supportive infrastructure investment to revitalize the German economy, addressing both immediate economic sluggishness and long-term competitiveness and sustainability concerns.
The coalition government's financial plans involve the reintroduction of degressive depreciation for equipment investments to encourage quicker capital expenditure by companies. Moreover, they plan to lower electricity taxes to reduce energy costs for energy-intensive businesses, acknowledging the importance of both short-term economic stimulus and long-term competitiveness.
