On 3 June 2020, the German Federal Government announced a €130bn fiscal package to help the German economy to recover from the impact of the COVID-19 pandemic. The aim of the package is in particular to strengthen broad consumption, incentivize private and public investments (particularly in green and digital technologies) and provide a boost to employee share programs for startups.
The economic recovery and crisis management package consists of four pillars: (1) strengthening economic recovery and the economic power of Germany; (2) softening economic and social issues; (3) strengthening states and municipalities; and (4) measures and support for young people and families. In addition, a future package is contemplated and in addition a European and international responsibility addressed. Overall, the three packages include 57 detailed measures. Some of the key measures of the three packages are as follows:
A) Economic recovery and crisis management package
Strengthening economic recovery and the economic power of Germany
- To increase the domestic demand in Germany, the VAT tax rate will be cut from 19% to 16%, with the lower band decreasing from 7% to 5% from 1 July until 31 December 2020 at a cost of approximately €20bn.
- The government will introduce a so-called “Social Guarantee for 2021” to stabilize contributions into the social benefit systems at 40%. This will protect net incomes of employees and stabilize the competitiveness of companies. This will come at a cost of approximately €5.3bn for 2020.
- Electricity prices will be reduced for consumers by reducing the EEG, a levy on electricity prices to subsidize renewable energy sources, wind and solar at a cost of approximately €11bn.
- The tax losses able to be carried forwards will be increased by law to a maximum of €5 million for 2020 and 2021 (€10 million in the case of joint assessment). It will take effect retrospectively for the 2019 tax bill, through the creation of a “Corona tax reserve”. The estimated (temporary) cost to the public budgets is €2bn, this amount will provide direct liquidity benefits to the corporate sector.
- Public investment projects amounting to €10bn will be revisited and will be started in 2020 and 2021, particularly in the areas of digitalization of public administration, public security projects and defense projects with high domestic value-add.
- Corporate depreciation rates for capital expenditure will increase significantly through the introduction of a 2.5x higher degressive depreciation factor up to a maximum of 25% per year, with a fiscal effect of €6bn.
- There will be a new scheme to promote employee share programs, whereby the specific requirements for startup companies will be taken into account through a targeted program with costs of €0.1bn.
Softening economic and social issues
- There will be a specific plan for the continuation of the German short labor scheme beyond 1 January 2021.
- Companies in economic sectors struck particularly hard by revenue losses in the current crisis will benefit from a new €25bn bridge program for the “re-start” months from June until August 2020. Every company that had a revenue decline of more than 60% in April and May 2020 (relative to 2019) and a continued decrease of 50% (against the previous month) will receive compensation of between 70 % and 80% of their fixed business costs. The benefit will be capped at €150,000 per company for three months and shall not exceed €9,000 (in case of enterprises of up to 5 employees) and €15,000 (for enterprises of up to 10 employees). The relevant reductions in turnover and fixed operating profit shall be checked and confirmed in an appropriate way by the tax advisors or accountants. Overpayments will need to be paid back. The application must be made by 31 August 2020 and payment of grants shall be made up until 30 November 2020.
States and municipalities measures
- Municipalities, which cover a large share of public investments in Germany, will receive fiscal support from the federal budget amounting to an additional €4bn per annum through higher federal payments into social housing schemes.
- A so-called “Municipal Solidarity Pact 2020” will be launched to cover all losses in the corporate taxes accruing to municipalities; the estimated cost of this measure to the federal budget will be €5.9bn.
- Municipal public transport systems, which suffered large revenue losses through a decline in passenger numbers, will receive additional grants from the federal budget of €2.5bn.
- Sport facilities will receive €150bn for the years 2020 and 2021 and the investment plan for sport facilities will be increased to €260bn.
Support for young people and families
- A “Children’s Bonus” of €300 per child will be paid to all families at a cost of €4.3bn.
- Refurbishment of Kindergartens in the years 2020 and 2021 at a cost of €1bn.
- Single parents will receive additional relief and benefits for two years, increasing the support for child care from €1908 to €4000 for 2020 and 2021 at a cost of €0.75bn.
- Capacities in childcare facilities will be expanded to facilitate social distancing requirements with a program covering €1bn. Daycare and full-day schooling investment programs will benefit from an additional €2bn.
B) Future package
Future investment package of €50bn
- An efficient transport and mobility infrastructure is a prerequisite for a rapid upturn and new growth in practically all economic sectors. The government wants to ensure mobility, whilst at the same time focusing on increased sustainability and climate protection. This shall be achieved through reducing CO2 emissions, e-car purchase subsidies, and other measures.
- The national “Hydrogen Strategy” will be funded with €7bn, with the aim of making Germany the supplier of the world in green hydrogen technologies. Industrial-scale projects, including the required renewable energy sources of 5GW of power supply, will be funded until 2030 with a goal of a further 5GWatts until 2035 and 2040. Investment grants for energy-intensive sectors will ensure that these targets are reached.
- An additional €2bn program will fund international partnerships with countries where green hydrogen can be produced with particular efficiency.
- A CO2 building refurbishment program amounting to €2bn will fund investments into energy-efficient buildings.
- Artificial intelligence investments will be funded with an additional €2bn, increasing the funding currently available from €3bn to €5bn. Investment projects into quantum computing will be funded with €2bn, 5G and 6G technologies and networks will receive an additional €7bn.
- A pact for public health promoting investments into health systems, hospitals, health care personnel, medical supply production and Corona-related vaccine research will be funded with a total of €10bn.
C) European and international responsibility
- An important first step is the €540bn credit program, with the elements of the SURE program for workers, the liquidity fund by the European Investment Bank EIB for small and medium-sized enterprises and the loans to the Member States through the European Stability Mechanism (ESM). Germany and France have taken the joint initiative to use a €500bn fund to help Europe’s economic recovery. For its part, the EU Commission has submitted another proposal.
- Provide additional funding up to the end of 2021 to combat the pandemic and to expand humanitarian aid and health care. Germany is intensifying the economic exchange between Germany and African countries. The “Compact with Africa” initiative offers a good starting point for this (costs are €3bn (€1.5 billion per year in 2020/2021)).