San Francisco Frontiers - Germany unveils tax breaks to boost stagnant economy

"It's important to send a clear signal in support of our country's economic strength and competitiveness," Finance Minister Lars Klingbeil said at a press conference.

Klingbeil he said he hoped the package, worth a cumulative 45.8 billion euros ($52.2 billion), could be pushed through parliament by the end of the month.

Under the plans, Germany's corporate tax rate would fall by one percent a year from 2028 to reach 10 percent, down from 15 percent.

Companies would also be able to deduct 30 percent of the cost of new machinery and equipment from their tax bill between 2025 and 2027, and electric company cars would receive preferential tax treatment.

Economy Minister Katherina Reiche said in a statement the plans would send an important "signal" to firms that Germany was open for business.

"Germany is back," she said. "Today's cabinet decision means we are going for growth and increased competitiveness, and more measures will come."

Germany's economy has struggled in recent years in the face of high production costs at home, increasingly fierce Chinese competition and growing global trade tensions fired by US President Donald Trump.

The new government under conservative Chancellor Friedrich Merz has already set out plans for a 500-billion-euro infrastructure fund in a bid to put the economy back on the right track.

But analysts have warned that money alone will not be enough to restart Germany's economic motor without structural reforms.

Commenting on an earlier outline of the tax plan, Deutsche Bank economist Robin Winkler said the deductions would provide "a welcome short-term stimulus for the manufacturing sector" without being a silver bullet.

"Its impact on facilitating the broader structural transformation of the German economy is likely to be limited," he said in a research note.

Some of Germany's regional governments -- which would have to approve the plans in the parliament's upper house -- have voiced concern at the cost, with 28 billion euros in lost revenue forecast for them between 2025 and 2029.

"These billions in investments will go up in smoke if the states and municipalities see holes in their core budgets," Anke Rehlinger, the leader of the Saarland region, said in an interview with news website T-Online.

R.Baker--SFF