Growth package okayed for business owners in Germany

By Theresa Münch and Martina Herzog, dpa I Saturday, March 23, 2024

 

BERLIN – A multibillion-euro growth package to boost businesses in Germany, promising tax relief and less bureaucracy, was approved by lawmakers on Friday, but the business community was not impressed with the much-reduced final result.

Originally, the law was intended to be a €7 billion ($7.6 billion) per year all-round package for all sectors, providing relief for companies in the economic downturn and incentivizing investment in climate-friendly measures.

The law was passed in the lower house, or Bundestag, but the federal states in the upper house, the Bundesrat, balked at it and sent it to a mediation committee because they feared the high costs.

The compromise bill passed by the Bundesrat on Friday is for €3.2 billion per year – less than half what was originally on the table.

A once planned state bonus for climate protection investments was scrapped, though tax incentives for research, better deductibility of losses in tax returns and the reduction of bureaucratic hurdles remained. Reporting procedures and accounting obligations are to be simplified and data transmitted electronically instead of via paper.

Finance Minister Christian Lindner, from the pro-business Free Democratic Party (FDP) declared on X, formerly Twitter, that while the package is an important signal, it is not enough.

“Its volume is much smaller than I originally planned.” More must be done to improve Germany’s lacklustre economy, he said, adding: “we are working on it.”

His State Secretary Katja Hessel, also from the FDP, said further steps for an “economic turnaround” with a reduction in bureaucracy, relief and structural reforms for the labour market were already being discussed.

Federal Chancellor Olaf Scholz wrote on X, formerly Twitter that the growth package was an “important sign for our economy and a successful future for the country.” He said it is “good that it’s coming now.”

The law helps companies to invest in research, development and economic growth in difficult times, he said.

German industry was underwhelmed.

“These tax cuts will not provide a noticeable boost to growth,” said the Federation of German Industries (BDI). The package was cut back too much for that and in Germany’s tough competition when it comes to tax policy, this is just a drop in the ocean, the group said.

The German Chamber of Industry and Commerce (DIHK) called for “a concrete reform agenda with relief that will quickly be implemented in everyday business life” before the summer break.

A more positive reaction came from the German Property Federation (ZIA), which welcomed the tax incentives for more residential construction as an “important signal to the property industry to start investing more again.”

The law will allow the construction and property industry to write off investment costs against taxes more quickly. This should ensure that money is available faster for new investments.

“Writing off 5% of investment costs for six years at a time – that’s a really big boost for housing construction in Germany,” Construction Minister Klara Geywitz said.

The new depreciation options also apply retroactively to all construction projects started from October that also fulfil certain environmental standards.

The conservative opposition, the Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU) had made their agreement conditional on the federal government easing the burden on farmers. They demanded that cuts to subsidies for agricultural diesel be reversed or that farmers be given the same amount of relief through other measures.

The federal government has since promised relief for the agricultural sector, but it did not present a package of concrete measures before the vote in the Bundesrat.

Agriculture Minister Cem Özdemir said officials are “in close contact with the profession,” and income tax relief and a strengthening of farmers in the value chain are being prepared.