Bundes council approves 'Growth Stimulant' for businesses - Council endorses financial stimulus for businesses at the federal level
The German government has recently approved the "Investment Booster," a comprehensive fiscal stimulus package designed to accelerate economic growth and private investment. This multi-pronged strategy focuses on enhanced tax benefits for capital expenditures in business operations, with a particular emphasis on key economic sectors and green technologies.
Key Features of the German "Investment Booster" --------------------------------------------------
The package includes several measures to incentivize business investment:
1. **Temporary Enhanced Depreciation (2025–2027):** Businesses can write off a significant portion of their investment costs for movable fixed assets, such as machinery, IT hardware, digital systems, and electric vehicles. Super depreciation allows for a 30% first-year write-off, while electric vehicles are eligible for a 75% first-year write-off, subject to new, higher price caps. 2. **Depreciation Method Change:** For movable fixed assets acquired or manufactured between July 1, 2025, and January 1, 2028, companies can use declining (degressive) depreciation instead of straight-line depreciation. 3. **Corporate Tax Rate Reduction (2028 onward):** The government plans to gradually reduce the corporate tax rate from 15% to 10% by 2032, encouraging long-term investments, especially in capital-heavy sectors such as manufacturing, technology, and infrastructure. 4. **Electric Vehicle Price Cap Increase:** The gross list price limit for company electric vehicles has been raised from €70,000 to €100,000 for vehicles purchased after June 30, 2025.
Sector-Specific Impacts ------------------------
The sectors expected to benefit most from the new depreciation rules and upcoming tax rate cuts are manufacturing, technology, and infrastructure, as they typically make significant capital investments. The measures are expected to boost after-tax returns and free cash flow, potentially by 1–3% for firms with stable margins. Additionally, the enhanced depreciation for electric vehicles and the increased price cap are designed to accelerate adoption of electric fleets, aligning with broader climate and economic transformation goals.
Implications for Government, States, and Municipalities --------------------------------------------------------
The "Investment Booster" will result in a temporary reduction in tax revenues for the federal government, states, and municipalities, estimated at over €48 billion by 2029. However, the government anticipates that these measures will stimulate economic activity and ultimately broaden the tax base. States and municipalities may see indirect effects, such as increased economic activity leading to higher employment and consumption, which could increase local tax revenues over time. Any reduction in corporate tax rates (from 2028) will also impact their fiscal positions, depending on the distribution of tax revenues between federal and local governments.
The federal government emphasizes that this stimulus is part of a broader "emergency program," and further relief for companies and households is expected, although specific details for municipal-level measures are less clear at this stage.
In conclusion, the German "Investment Booster" is a strategic fiscal strategy aimed at stimulating near-term capital investment and setting the groundwork for long-term competitiveness through phased corporate tax cuts. The measures are expected to support economic growth and job creation, but will entail short-term revenue losses for the federal government. States and municipalities are likely to experience indirect benefits from increased economic activity, though some may also see reduced corporate tax revenues as the cuts take effect.
- Vocational training programs in EC countries could potentially receive increased investments from German businesses, as they fall under the key economic sectors highlighted in the "Investment Booster" strategy, which focuses on manufacturing, technology, and infrastructure.
- The financial implications of the German "Investment Booster" may lead to increased investments in vocational training, as the strategy encourages businesses to invest more in capital-heavy sectors, such as manufacturing and technology, which often require a skilled workforce.
