Thursday June 4th 2020
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The leaders of the black-red coalition agree on an economic package worth billions in the fight against the consequences of the Corona crisis. Families benefit, as do municipalities and the economy. VAT is temporarily reduced.
The leaders of the CDU, CSU and SPD advised about 21 hours to put together a stimulus package from a bundle of over 80 points. The agreement is reached late on Wednesday evening and it starts with a bang: For six months, from July 1st, the VAT will be reduced to 16 percent and the reduced rate to five percent. Consumers will be relieved of around 20 billion euros if prices drop accordingly.
The paper comprises 57 points, which the coalition presents as an “economic and crisis management package” and as a “package for the future”. Chancellor Angela Merkel (CDU) puts the financial volume at 130 billion euros. Car purchase premiums yes, but not for combustion cars – a child bonus of 300 euros – billion dollar injections for the municipalities, but no assumption of their old debts – these are important details of the agreement.
“Buzz” for the economy
“We want to get out of the crisis with a bang,” said Vice Chancellor and Finance Minister Olaf Scholz from the SPD. The overall package is intended to boost the economy in order to steer Germany out of the largest economic downturn in the post-war period as quickly as possible. The Federal Government officially still expects economic output to decline by 6.3 percent for the year as a whole. But Economics Minister Peter Altmaier already let it be known that things could get worse. Here is an overview of the details:
financing
“Not everything” will have to be financed through additional debts, said Scholz – but it is certain that the federal government will need a second supplementary budget for 2020. At the end of March, a first supplementary budget had been decided, which enabled debts of 156 billion euros to cope with the virus crisis. According to Scholz, well over 60 billion euros of this buffer has not yet been used.
Social security contributions
In addition to the reduction in value added tax (CSU boss Markus Söder: “That was an idea of the Union.”) From July 1 to December 31, 2020, the coalition promises to stabilize social security contributions at a maximum of 40 percent in 2021 despite additional expenditure and slumps in income. For this, tax funds from the federal budget are transferred to the social security funds. The costs of the “Social Guarantee 2021” are estimated at 5.3 billion euros for 2020 – for 2021 they are not yet quantifiable. There should also be a relief in electricity costs: the subsidy for the promotion of renewable energy is to be reduced to 6.5 cents / kilowatt hour by federal subsidies in 2021 and to drop to six cents the following year. Cost: around eleven billion euros.
Tax law
Tax law makes it easier for companies to provide them with additional liquidity. The tax loss carryforward is increased to five million or ten million euros in the case of a joint assessment. Degressive depreciation for wear and tear will be reintroduced for movable assets for 2020 and 2021 at 25 percent per year.
Trainee bonus
The SPD was initially unsuccessful in calling for the duration of the short-time allowance to be extended to two years. In September there should be a regulation for the coming year. For small and medium-sized companies, there should be a bonus of 2,000 euros if they do not reduce the number of their trainees despite the virus crisis.
Bridging aids
Bridging aids with a volume of up to 25 billion euros will be launched for small and medium-sized companies. They apply across industries, with special features for particularly affected economic sectors such as the hotel and restaurant industry or travel agencies and trade fair companies. They are moored at the drop in sales.
Aid for municipalities
There has been a long dispute over aid to local authorities: Contrary to what the SPD demands, they are not relieved of their old debts. You will still receive billions of euros in aid: In future, the federal government will assume three quarters of Hartz IV recipients’ rent and heating costs instead of just under half. This will save the municipalities around four billion euros. In addition, the federal government, together with the federal states, wants to compensate for the slump in local trade tax, which is estimated at 11.8 billion euros. That would cost the federal government 5.9 billion euros.
Family bonus
As a success, the SPD can book a one-time child bonus of 300 euros, the cost of which is estimated at around 4.3 billion euros. The bonus will be offset against the child allowance when filing the tax return. Hartz IV recipients get it without deductions in addition to social assistance. There is an additional tax relief for single parents for 2020 and 2021.
Future package
The measures mentioned below by the coalition will account for over 50 billion euros of the total package of 130 billion euros over the next few years. The tax research allowance is increased. Mobility is a big area:
With the existing purchase premium for electric cars, the federal government has doubled its share to 6000 euros and now calls this “innovation premium” instead of “environmental premium”. “The manufacturers’ premium remains unaffected,” the agreement says – so far they have contributed up to 3000 euros to the premium. With the rejection of purchase premiums for combustion vehicles, the Social Democrats prevailed.
The vehicle tax is to be geared more towards carbon dioxide emissions. In addition, a bonus program for future investments by vehicle manufacturers and the supply industry in the amount of one billion euros will be launched for the years 2020 and 2021. Billions more will go into expanding the charging station infrastructure for e-cars and battery cell production. The already agreed capital increase for Deutsche Bahn of five billion euros is also included. The changeover to modern aircraft is also to be funded with one billion euros.
A “National Hydrogen Strategy” is estimated at seven billion euros. The expansion of solar and wind power is being pushed. The CO2 building renovation program will be increased by one billion euros.
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