German Stimulus Plan Approved With Tax Cut and Cash Bonus (2)

A bundle of measures to help pull Europe’s largest economy out of its worst recession since World War II was approved by both houses of parliament on Monday, paving the way for tax breaks and bonuses for companies and households.

The measures, including a temporary cut in value-added tax and a cash bonus for parents of 300 euros ($338) per child, are part of a 130-billion euro ($145 billion) package agreed by Chancellor Angela Merkel’s coalition parties this month.

In a nation infamous for its tangled red tape and an often lethargic state, Merkel’s government has won plaudits for its decisive handling of the crisis and was eager to get the measures approved this week before parliament enters its summer recess. Within hours of the lower house approval, the upper house -- or Bundesrat -- gave its backing as well in a special session .

“We have a chance in the second half of the year to get the economy back on a growth path again,” Economy Minister Peter Altmaier said.

Even before the value-added tax cut goes into effect on July 1, several retailers cut their prices in line with the reduction of the levy from 19% to 16% for most goods and from 7% to 5% for a few basic consumer goods.

The potential impact of the tax break was hotly debated in recent weeks, with critics saying it was too little to sway consumers. Finance Minister Olaf Scholz said last week there are already signs that the initiative is working, and the government estimates that it will generate an additional 20 billion euros in purchasing power.

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The quick approval of the bill is laudable and the measures must now be implemented quickly, the head of the influential industry lobby DIHK, Eric Schweitzer, said in an emailed statement.

Schweitzer cited a snap poll that showed one out of five companies whose business is still mostly or totally shut down. Bus companies, entertainment businesses and trade fair operators are particularly hard hit, he said.

Germany’s economy is projected to contract by more than 6% this year and the country will have to borrow a net 218.5 billion euros to help foster a return to growth. That will bump the overall debt burden to about 77% of GDP, from around 60%, according to finance ministry estimates.

Other measures included in the bill approved on Monday:

• Increased tax exemption for single parents for 2020 and 2021
• Extended carry-forward of tax losses
• Tax incentives for electric cars, investments

(Updates with upper house vote in first paragraph)

--With assistance from Birgit Jennen.

To contact the reporter on this story:
Raymond Colitt in Berlin at rcolitt@bloomberg.net

To contact the editors responsible for this story:
Ben Sills at bsills@bloomberg.net

Iain Rogers, Andrew Blackman

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