Germany's new government will seek to pass 46 billion euros corporate tax breaks in the summer to shake up the euro zone's largest stagnant economy.
Finance Minister Lars Klingbeil, a Social Democrat, will outline the measures at a cabinet meeting on Wednesday. According to the Financial Times government estimates that tax benefits include deductions for new equipment and new electric vehicles, the coalition's term expires in 2029, totaling about €46 billion.
“After a period of economic stagnation, it is important to greatly improve the potential of the German economy.” These measures are intended to “send a strong signal to Germany’s short-term and long-term competitiveness as a commercial location.”
In addition to a massive debt-funded public spending plan, the move is more than 100 million euros to modernize German armed forces and aging infrastructure - Friedrich Merz's central plate effort to restore the economy.
The leader of the Christian Democratic Party, who is running on a pro-business platform, also vows to subsidize the cost of electricity in the country's struggling manufacturing industry. A ministry has been established to cut bureaucracy and speed up the digitization of government.
Holger Schmieding, chief economist at Berenberg, said the planned tax relief would "benefit Germany as an investment site." "But this can only be the beginning. It will be more difficult to reduce the regulatory burden, but it will be more important."
Starting July 1, the company will be able to deduct 30% of the costs of new machinery and other equipment from its tax bills annually between 2025 and 2027.
Starting in 2028, the federal corporate tax rate of 15% will be reduced to 10% each year. The company will also be allowed to depreciate 75% of the purchase price of new electric vehicles in the first year, thereby reducing its taxable income. The government intends to introduce more favorable tax incentives for R&D expenditures.
Robin Winkler, head of German macro macro at Deutsche Bank, said the proposals should "provide welcome short-term stimulus to the manufacturing sector."
Myers' coalition with the Social Democrats expects both houses of parliament to take these measures by the end of the summer.
Merz's economic plan marks a policy shift in a country, which was not long ago the EU's standard enterprise in fiscal discipline.
Export-oriented countries (already struggling with China’s competition and higher energy costs) have grown the lowest in the past three years. Economists warn that updating the U.S. threat to European goods tariffs could put the economy in a contraction this year.
In the third quarter of 2024, German companies invested 9% lower in factories, machinery and vehicles, according to data from German Development Bank KFW.
The United States grew at 11.5% throughout the EU during the same period, and the EU rose by 1%.
Public and private R&D spending is also lower than other countries: Although Germany spent 11% of its intellectual property rights, rather than the 19% pandemic, the U.S. spending in areas such as AI grew 36%, and France spent 27%.