German Economy Minister Robert Habeck (Greens) aims to revive weak economic growth in Germany through an investment fund, according to a 14-page proposal titled ‘Update für die Wirtschaft’ (Update for the Economy) he released on Wednesday.
The plan comes on the heels of a gloomy economic forecast for Germany released on Tuesday by the International Monetary Fund (IMF), which predicts that the country’s economy will grow by just 0.8% next year, below the Eurozone average. This year, growth is expected to be zero.
Habeck’s proposal intends to make all business investments, excluding construction, 10% tax-deductible in the coming years. For companies not turning a profit, the government would pre-finance the 10%.
Due to the sensitivity around the word “debt” in Germany, Habeck avoids mentioning it directly. The idea of a fund, limited in time and amount, is aimed at making the proposal politically acceptable.
The exact financial scope is unclear, but estimates by the German industry federation BDI suggest it could amount to hundreds of billions of euros spread over several years. Habeck argues this is necessary to keep Germany competitive in a transformed global landscape.
He also emphasises that the fund would ultimately lead to more economic growth and thus more tax revenue, resulting in only a moderate increase in national debt relative to economic output.
This proposal comes as the German government is preparing to present its budget draft to parliament by mid-next month. It includes 49 measures introduced this summer to stimulate the economy.
Habeck acknowledges his proposal is “outside the coalition agreement” but views it as “a contribution to the debate.”
Chancellor Olaf Scholz's SPD supports the proposal, while the liberal Free Democrats (FDP), which governs along with the Greens and the SPD, prefers lower taxes instead of new public debt.
