In view of the sluggish economy, both Federal Economics Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) have spoken out in favor of easing the burden on the economy. Various options are being discussed to make investments easier. All ideas have a common problem: financing is open. The traffic light parties SPD, Greens and FDP are thinking of different paths. Business associations such as BDI and the Family Business Foundation are using studies to support calls for a tax policy that creates more scope for investments. In order to break the blockade, Habeck called on ARD on Sunday that all parties should think about the needs of the economy and not be guided by their party conference resolutions. Below is an overview of the initial situation and the possibilities.
The most important taxes for companies are corporation tax, trade tax and the solidarity surcharge. “These three components lead on average to a nominal tax burden on corporations of 29.9 percent in 2023,” summarized the German Economic Institute (IW) in a study for the Family Business Foundation. That is around 6.5 percentage points above the average for the OECD countries. Corporate income tax was last reduced from 25 to 15 percent in 2008. Partnerships are subject to income tax. The study recommends a gradual reduction in corporate tax. The authors expect this to stimulate investment and consumption, which will make up for the shortfall in state revenue in the long term.
As early as 2023, the federal government has decided on a growth opportunity package that is intended to relieve companies of seven to eight billion euros annually in the final stage. The package is hanging in the mediation committee because the states reject the idea that they and the municipalities should bear more than half of the tax losses. In the end, Habeck said on Sunday, it could amount to a relief volume of three billion euros - a tenth of what is needed to boost the economy. A key component of the package is likely to be the introduction of a temporary, declining balance depreciation for new investments in housing construction. There is agreement in principle, but not yet on the amount.
On Sunday, the Economics Minister mentioned that the planned general depreciation options for investments could perhaps be expanded further - so that companies can better claim costs for short-term investments in production facilities for tax purposes. If there is short-term help, a supplementary budget for 2024 could be necessary.
Some neighboring countries such as France have reduced corporate taxes to 25 percent. Habeck admits that the average in Germany is 30 percent. A reduction to 25 percent would cost 30 billion euros annually. For the SPD and the Greens, it is considered impossible to save such an amount elsewhere in the federal budget. A sharp increase in tax revenue could help. However, this is not expected given the sluggish economy.
Lindner once again brought up the complete abolition of the solidarity surcharge, which would also relieve the burden on family businesses. The SPD and the Greens have so far rejected this for fundamental reasons. Habeck also points out that this would also create financing gaps in the 2025 budget. The loss in revenue due to the abolition of solidarity was previously estimated at around ten billion euros. Since 2021, solos have been abolished for around 90 percent of income tax payers. Corporations still pay it.
Last week, Habeck once again proposed a loan-financed special pot for investments, which was immediately rejected by the Union and the coalition partner FDP. The opposition Union's rejection is relevant in this case because a fund anchored in the Basic Law - like the one that exists for the Bundeswehr - would require a two-thirds majority and thus the approval of the CDU and CSU.
The SPD has proposed an alternative, namely a Germany fund for investments that collects private capital and that should also be able to use money from pension funds, life insurance companies or the state pension insurance. This should also be started with government start-up funding. It remains unclear whether this money should come from the budget or whether a loan should be taken out for it.
The SPD and the Greens wanted to suspend the debt brake again for 2024, which the FDP rejected. In the background, however, there is still the option of outsourcing the costs of the Ukraine war, for example. Habeck put these expenses on Sunday at around 20 billion euros annually, which would then create scope in the normal budget. The FDP sees this with skepticism. Both the Union leaders and the FDP have so far rejected a fundamental reform of the debt brake anchored in the Basic Law.