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The German government has agreed to a 7 billion-euro corporate tax cut package in a move aimed at reviving a faltering economy and improving the image of a three-party coalition weakened by months of wrangling.

The bill comes amid growing concerns about the state of the German economy, which stalled in the three months to June after contracting in the previous two quarters, lagging behind all big rivals.

Both the IMF and OECD expect Germany to be the world’s worst-performing major economy this year.

The so-called Growth Opportunities Act, which will run for four years, is at the heart of a 10-point plan to boost growth presented by German Chancellor Olaf Scholz on the first day of a two-day government retreat at Meseberg Palace on Tuesday. Baroque palace on the outskirts of Berlin.

However, the plan ignores a proposal backed by the Economy Ministry to subsidize electricity prices for industrial companies, and it was unclear whether Meseberg would discuss the issue. “Long-term subsidies are not the solution,” the plan’s text said.

Scholz’s difficult coalition of the Social Democrats, Greens and Free Democrats (FDP) has been torn apart by policy differences, affecting the three parties’ support. A recent YouGov poll found that 69 percent of Germans believe the government is incapable of solving the country’s problems.

Earlier this summer, Finance Minister and FDP leader Christian Lindner unveiled a tax break bill aimed at “increasing Germany’s competitiveness” and “giving new impetus to growth”. But the plan was blocked by Greens Families Minister Lisa Paus in retaliation for his refusal to allocate more money to child welfare reforms spearheaded by the ministry.

The debate highlights a deep ideological divide between the left-leaning Green Party and pro-business liberals. Eventually, ministers declared a truce, announcing on Monday they had agreed on child welfare.

The agreement paves the way for welfare reform and tax cuts bills to be passed by the German cabinet and sent to the Bundestag on Wednesday.

The tax package is designed to incentivize investment, targeting middle class – Small and medium-sized enterprises that form the backbone of the German economy.

It will introduce investment tax incentives, especially those aimed at combating climate change and improving energy efficiency, as well as research and development tax incentives. It also aims to boost construction by introducing a new depreciation allowance to stimulate investment in new housing.

There is little new in the ten-point plan, aside from the tax relief package. These include the pre-announced Climate and Transition Fund, worth 212 billion euros, which will finance investments in electric vehicles, building refurbishment and decarbonisation of industry, as well as semiconductor manufacturing. Some EUR 58 billion will be provided in 2024 alone.

The government said it would also seek to speed up the planning process, reduce bureaucracy and provide “safe and affordable energy” by expanding solar and wind capacity.


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