German business tax relief package cut to 3.2 bln euros annually -sources

The government's Growth Opportunities Act, a package aimed at unleashing new investment amid weak foreign demand and high interest rates, passed the lower house of parliament in November but then faced opposition in the Bundesrat, the legislative body that represents the 16 German states at the federal level. The states and municipalities would have had to shoulder the bulk of the expected tax revenue shortfall and therefore they opposed the law, which was referred to a parliamentary mediation committee.

Germany's tax relief for small and medium-sized companies will be 3.2 billion euros ($3.45 billion) annually, about half the amount planned originally, three sources familiar with the negotiations of a mediation committee told Reuters on Friday. The government's Growth Opportunities Act, a package aimed at unleashing new investment amid weak foreign demand and high interest rates, passed the lower house of parliament in November but then faced opposition in the Bundesrat, the legislative body that represents the 16 German states at the federal level.

The states and municipalities would have had to shoulder the bulk of the expected tax revenue shortfall and therefore they opposed the law, which was referred to a parliamentary mediation committee. Michael Schrodi, of Chancellor Olaf Scholz's Social Democrats (SPD), said it was a good outcome.

"It will provide important growth impetus for the economy," Schrodi said. "At the same time, the burden on local authorities will be far less than originally planned." The mediation committee's agreement lowers the expected income shortfall for municipalities to around 555 million euros, for the federal government to just under 1.4 billion euros and for the federal states to just under 1.3 billion euros, the sources said.

Originally, the German government had planned tax relief through the Growth Opportunities Act totalling around 7 billion euros per year from 2024, and a total of over 32 billion euros in the coming years. The mediation committee is due to deal with the law on Feb. 21, when the compromise could be formally approved.

A planned state subsidy of 15% of the total amount for investments in climate protection measures - seen as the centrepiece of the law - has been dropped from the package, according to the sources. "Unfortunately, the CDU/CSU resisted the introduction of the investment premium instrument, a so-called 'tax credit', which the economy would also have very much liked," said Katharina Beck, from the Green Party, noting that these tax credits are used in the United States to attract investment.

The conservatives of the CDU/CSU have recently made approval conditional on the cancellation of the government decision to phase out a tax break on agricultural diesel. CDU/CSU politician Mathias Middelberg said an agreement on the Growth Opportunities Act was still subject to an agreement in the mediation committee on the tax break for farmers.

($1 = 0.9289 euros)

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