After months of dispute between the government and the opposition, the planned billion-dollar program to stimulate the economy and strengthen Germany as a business location can now come into force. After the Bundestag, the Bundesrat also approved the Traffic Light Coalition’s so-called Growth Opportunities Act by a majority on Friday. Above all, it provides tax relief for companies and the reduction of bureaucracy. However, the relief volume of the package shrank over the course of the negotiations from the original seven to just over three billion euros. Given the total size of the German economy of more than four trillion euros, the stimulating effect of the law is likely to be limited.
Federal Finance Minister Christian Lindner (FDP) reacted accordingly soberly to the state chamber’s decision. The law sends “an important signal,” he wrote in the short message service X. However, further steps must follow if the economic situation is to be fundamentally improved. “We are working on it,” said the minister. Chancellor Olaf Scholz (SPD) wrote that the package would help companies invest in research, development and economic growth in tense times. “It’s good that it’s coming now,” he explained.
Lindner originally conceived the law as a multi-billion dollar sweeping blow for all industries. His goal: to relieve the burden on companies in the economic downturn and initiate investments in climate protection. The core of the almost 50 tax policy measures he proposed was a state bonus for business investments, which the states rejected as too expensive. The US-style tax credits discussed in the coalition, so-called tax creditsThere will be no tax that companies willing to invest can deduct directly from their tax liability.
The Union linked the negotiations to the farmers’ protests
What now remains: more generous tax support for research, better ability to offset losses in tax returns and the reintroduction of the so-called degressive depreciation allowance. It allows companies to immediately write off a larger portion of their expenses for machinery, vehicles and materials to reduce taxes. So far, the rules provide for the investment costs to be written off evenly over several years. However, a study by the Leibniz Center for European Economic Research (ZEW) recently came to the conclusion that the measure would only reduce the effective tax burden on companies from 28.5 to 28.3 percent.
The negotiations on the Growth Opportunities Act were made particularly difficult by the fact that the Union linked the project to the government’s plans to gradually eliminate farmers’ subsidies for agricultural diesel as part of budget consolidation. Although the two issues have nothing to do with each other, the CDU and CSU sensed an opportunity to win over the protesting farmers and drive the coalition ahead of them.
The federal government has now promised relief for the agricultural sector, but did not present a package of concrete measures until the vote in the Federal Council. Agriculture Minister Cem Özdemir (Greens) simply said they were “in close contact with the profession”. Among other things, preparations are being made to eliminate bureaucratic documentation requirements and make income tax easier. In this way, farmers should be able to average their profits from good and bad harvest years so that they don’t have to pay no taxes at all one year and very high taxes the next year. In addition, requirements to leave individual areas fallow to improve nature conservation should no longer be required.
The finance minister blames the CDU and CSU for the poor situation
Lindner made it clear that he sees no connection between possible relief for farmers and the growth package. Rather, the connection was constructed by the “Union,” he told the German Press Agency. Incidentally, the CDU and CSU are not in a position to set conditions because they share responsibility for the poor competitive situation in the German economy. “During the CDU’s time in government, since 2014, we have dramatically lost competitiveness,” said Lindner.
The financial policy spokeswoman for the Green parliamentary group, Katharina Beck, accused the Union of concealing the fact that, in addition to the commercial economy, farmers also benefited from the Growth Opportunities Act. “While a company earns an average of just under 3,000 euros per year from agricultural diesel, the measures of the Growth Opportunities Act can provide many times as much relief,” said Beck. Simply doubling the special depreciation from 20 to 40 percent could lead to tax savings of 12,000 euros when purchasing, for example, a smaller tractor for 100,000 euros.
The gradual dismantling of agricultural diesel subsidies was also passed in the Federal Council on Friday. The majority of the states voted against referring the law to the mediation committee. If that had happened, it would have been another defeat for the traffic lights. Because additional measures that the federal government had decided to consolidate the budget for 2024 would have been stopped, such as the higher air traffic tax and the stricter sanctions for citizens’ benefit recipients who were unwilling to cooperate.