U.S. President Donald Trump’s tariff policies are expected to hurt Germany’s economy
International news via Reuters:
The German cabinet approved on Wednesday a first tax relief package worth 46 billion euros ($52.43 billion) to support companies and revive its sluggish economy from this year through 2029, the government said.
The aim is to boost investment with measures like favourable depreciation options for companies to ease their tax burden, including depreciation rates of as much as 30% per year for three years.
“This new depreciation rule provides a welcome short-term stimulus for the manufacturing sector,” said Deutsche Bank economist Robin Winkler. “However, its impact on facilitating the broader structural transformation of the German economy is likely to be limited.”
Germany’s anaemic economy could be facing a third consecutive year of contraction for the first time in its post-war history, and reviving the economy is a key task of the new government.
“After just four weeks in office, we are presenting the first important reforms to ensure new economic strength,” German Finance Minister Lars Klingbeil said on Wednesday. “We are providing the economy with urgently needed planning certainty and creating strong investment incentives.”
U.S. President Donald Trump’s tariff policies are expected to hurt Germany’s export-oriented economy. Germany’s new chancellor, Friedrich Merz, will travel to Washington to meet Trump on Thursday.
CORPORATE TAX CUT
The first package of tax reliefs includes a promised one percentage point cut to the corporate tax rate each year over five years from 2028, bringing it down to 10% by 2032.
To boost electric car purchases, the package includes temporary tax deductions for buyers, who will be able to depreciate 75% of the purchase price in the year in which the vehicle is bought.
The measures will cut government tax revenue by 2.5 billion euros this year and peak at 12 billion in 2028, the last year of office for the ruling coalition.
A spokesperson from the finance ministry said on Monday that talks were ongoing on how to bring the draft law to parliament before the summer break, as the package needs the approval of the lower and upper houses of parliament.
Additional measures to boost the economy, such as establishing a 500 billion euro infrastructure fund, should be brought to the cabinet with the draft 2025 budget on June 24 and the first draft for the 2026 budget on July 30.
Germany’s parliament approved plans for a massive spending surge in March, throwing off decades of fiscal conservatism.
($1 = 0.8775 euros)
Reporting by Maria Martinez and Christian Kraemer, Editing by Madeline Chambers and Bernadette Baum
