Germany Unveils €46 Billion Tax Relief Package to Combat Economic Slump

The German cabinet approved a €46 billion corporate tax relief package on June 4, targeting stagnant growth after two consecutive years of economic contraction.

The plan, valid through 2029, includes accelerated depreciation rules and a phased corporate tax cut from 15% to 10% by 2032.

Finance Minister Lars Klingbeil called it a “decisive step to restore competitiveness” for Europe’s largest economy, which shrank 0.3% in 2023 and 0.2% in 2024.

Businesses can now deduct 30% annually for machinery investments until 2027, deferring tax liabilities. Electric vehicle buyers gain 75% first-year depreciation for purchases through 2027.

These measures aim to reverse declining industrial output, which fell 3% in 2024, and boost private investment after a 2.8% drop in capital formation.

A separate €500 billion infrastructure fund, approved in March, will modernize transport, energy, and digital networks over 12 years.

Critics argue bureaucracy delays projects—highway builds spend 85% of time on planning.

The fund bypasses Germany’s constitutional debt brake, marking a policy shift under Chancellor Friedrich Merz’s coalition.

Germany Unveils €46 Billion Tax Relief Package to Combat Economic Slump

Exports dropped 0.8% in 2024 amid Chinese competition and U.S. tariff threats. Analysts warn the tax cuts offer short-term relief but won’t resolve structural issues like high energy costs.

Deutsche Bank’s Robin Winkler noted the package “lacks tools for broader industrial transformation.” States also fear revenue losses, projecting €28 billion shortfalls by 2029.

The cabinet will present 2025-2026 budget drafts on June 25 and July 30. Parliament must approve all measures, including energy cost reductions and faster permitting reforms.

With 2025 growth forecasts at 0.1%, Germany’s recovery hinges on translating fiscal stimulus into tangible projects.

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