| 16 June 2024, Sunday |

Germany fails to pass tax relief law in coalition spat

Germany’s ruling coalition enacted legislation to encourage the growth of start-ups but failed to reach an agreement on a second package granting broad corporate tax relief worth billions of euros aimed at restoring growth in Europe’s largest economy.

Chancellor Olaf Scholz’s government passed the Future of Financing Act at a cabinet meeting to make it easier for enterprises to access financial markets and attract qualified personnel.

According to a draft seen by Reuters, the law increases the tax allowance for employee share ownership to 5,000 euros ($5,458) from 1,440 euros, to help start-ups attract talent when they are unable to offer high salaries.

But the cabinet failed to agree on passing the Growth Opportunities Act as wrangling in Scholz’s three-way coalition, comprising his Social Democrats, the Greens and liberal Free Democrats (FDP), continued.

According to sources, the talks stumbled on demands by the Minister of Family Affairs Lisa Paus, of the Greens party, to raise spending on child support in tandem with giving more tax benefit to companies.

“Germany needs growth again,” Finance Minister Christian Lindner wrote on social media. “It is therefore regrettable that a cabinet decision on the #Growth Opportunities Act … was not possible.

“Families with children also need good jobs,” he added in apparent reference to the Greens’ demand. The disagreement prompted Lindner to abruptly cancel a press conference to present the law.

“I take a dim view of setting economic support measures or higher defence spending against giving more resources to families threatened with poverty,” Paus told Die Welt newspaper.

According to a draft seen by Reuters, the law envisages tax relief of 7.56 billion, 9.38 billion and 6.5 billion euros respectively in the years 2025, 2026 and 2027.

It also gives incentives to companies to make climate friendly investments, tax incentives for research and allows companies to offset more losses against profits than in previous financial years.

The law, designed to boost growth when the economy is struggling to regain momentum after falling into recession, would still be passed, Scholz said.

“We will pass a Growth Opportunities Act this month,” he told a meeting of a regional business association in Duesseldorf.

  • Reuters