Germany Approves €32 Billion Tax Cuts to Provide Significant Boost to Economy, Reports Reuters

By Andreas Rinke and Maria Martinez

MESEBERG, Germany – Germany’s governing coalition managed to resolve weeks of internal disputes on Tuesday, reaching an agreement for a total of 32 billion euros (approximately $34.63 billion) in corporate tax cuts over the next four years aimed at revitalizing the struggling economy.

A prior effort to pass the “Growth Opportunities Law” earlier this month failed, which many interpreted as an indicator that the coalition, comprised of two socially-oriented leftist parties and one economically liberal party, was too cumbersome to govern effectively.

Chancellor Olaf Scholz emphasized the need for significant economic improvement at the beginning of a two-day cabinet retreat at Schloss Meseberg, a baroque castle near Berlin. He remarked, “The German economy can do more,” highlighting the stagnation witnessed in the second quarter, which confirmed the country’s status as one of the weakest major economies globally after a winter recession.

The stimulus package, while modest compared to a 4 trillion euro economy, is projected to create a shortfall of 2.6 billion euros for the federal government, 2.5 billion euros for states, and 1.9 billion euros for municipalities in its first year.

The legislation received backing from Finance Minister Christian Lindner, but progress was initially hampered by Family Minister Lisa Paus of the Greens, who sought 12 billion euros for child support funding. An agreement was ultimately reached when the planned Child Basic Insurance was reduced to just over 2 billion euros.

Lindner rebuffed suggestions that increased government spending would be beneficial to stimulate growth, arguing that such measures would only exacerbate inflation and that corporate tax reductions would have a more substantial effect.

Public dissatisfaction with the coalition’s performance is on the rise. A recent poll indicated that 61% of respondents were so frustrated by the coalition’s infighting that they had lost interest in policy discussions. Additionally, the poll revealed that 63% perceived Scholz as a weak leader, a notable increase from 51% in April.

A government source, who chose to remain anonymous, stated that it was no longer acceptable to prioritize political discussions around subsidies, especially as government documents indicated that subsidies are set to nearly double to 67.1 billion euros next year compared to 2021, with nearly two-thirds aimed at supporting the transition to a lower-carbon economy.

The new legislation aims to incentivize companies to invest in environmentally friendly projects, offers tax breaks for research activities, and enables firms to offset greater losses against profits from previous financial years.