Germany agrees to tax cuts of 32 billion euros to give the economy a “big boost”

German Chancellor Olaf Scholz hosts a cabinet meeting at Schloss Meseberg Castle, near Gransee

German Chancellor Olaf Scholz makes a statement before a closed cabinet meeting at Schloss Meseberg near Grunsee, Germany on August 29, 2023. REUTERS/Lizzie Nessner Obtain licensing rights

MISEBERG, Germany (Reuters) – Germany’s ruling coalition on Tuesday set aside weeks of wrangling to agree to corporate tax cuts totaling 32 billion euros ($34.63 billion) over four years to boost the ailing economy.

An earlier attempt to pass the “Growth Opportunities Act” earlier this month failed in what was widely seen as a sign that the ruling coalition of two left-wing social parties and one economic liberal party is difficult to manage.

“We will discuss how to achieve a major push,” Chancellor Olaf Scholz said at the start of a two-day cabinet meeting at Schloss Meseberg, a Baroque castle outside Berlin. “The German economy can do more.”

The German economy stagnated in the second quarter, showing no sign of recovering from the winter slump, cementing its position as one of the weakest major economies in the world.

According to the draft seen by Reuters, the stimulus package, modest in the context of a $4 trillion economy, would in its first year cause tax revenue shortfalls of 2.6 billion euros for the federal government, 2.5 billion euros for the states and 1.9 billion euros. Euros for municipalities.

Liberal Finance Minister Christian Lindner endorsed the bill, but it was thwarted when the Greens’ family minister, Lisa Paus, asked for €12 billion in child support.

A deal was reached on Tuesday when the two sides agreed to cut planned basic children’s insurance to just over two billion euros.

Lindner dismissed calls for the government to spend to help the economy grow again, saying the spending would stoke inflation and corporate tax cuts would have a bigger impact.

And mounting popular dissatisfaction with the performance of the coalition. A Forsa poll published on Tuesday showed that 61 percent of respondents are so upset by coalition disagreements that they no longer care about politics.

The poll also showed that 63% think Schulz is a weak leader, compared to 51% in April.

A government source, speaking on condition of anonymity, said it was no longer acceptable to focus the political debate on subsidies.

A government document seen by Reuters showed that subsidies are set to nearly double to 67.1 billion euros next year compared to 2021. About two-thirds of this subsidy is designed to help finance the green transition to a low-carbon economy.

The new law gives incentives to companies to make climate-friendly investments, provides tax incentives for research and allows companies to offset more losses against profits from other fiscal years.

($1 = 0.9265 euros)

(Reporting by Matthias Williams and Christian Kremer), Writing by Thomas Escritt, Editing by Thomas Janowski, Ed Osmond and Barbara Lewis

Our standards: Thomson Reuters Principles of Trust.

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Maria Martinez is a Reuters correspondent in Berlin covering the German economy and the Ministry of Finance. Maria previously worked for Dow Jones Newswires in Barcelona covering the European economy and for Bloomberg, Debtwire and the New York Stock Exchange in New York City. She graduated with a master’s degree in international affairs from Columbia University as a Fulbright Scholar. Contact: +34685873768

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