Tax cut and family bonus: Bundestag approves stimulus package

Finance minister Scholz had promised a “boom” to boost consumption again after the Corona crisis. The federal government’s economic stimulus package has now cleared the first hurdle – the Bundestag is voting for a reduction in VAT and a family bonus. But the opposition doubts whether the measures will work.

Fewer taxes on shopping and money on family accounts: The Bundestag has passed important parts of the economic stimulus package that should boost consumption and the economy in the Corona crisis. Parliament approved the changes in a special session with the votes of the grand coalition. In order for them to enter into force on July 1, however, the approval of the Federal Council is also required in the afternoon.

A reduction in VAT is intended to strengthen the weakened purchasing power due to the corona pandemic and short-time work. By the end of the year, instead of 19, there would only be 16 percent VAT on purchases. The reduced rate, which applies to many groceries and everyday goods, is reduced from 7 to 5 percent. Many supermarkets, car and furniture stores have already announced that they will pass the savings on to their customers one-to-one – in some cases prices have already been reduced at the beginning of the week.

The opposition nevertheless criticized the temporary tax cut as largely ineffective. For the retail trade it means “absurd bureaucratic effort”, at the same time an average household saves just 30 euros a month, said FDP parliamentary group leader Christian Dürr. Left and Greens doubted that the savings would really reach the consumer. It is a daring, unpredictable bet. The AfD also questioned economic impulses.

According to the Ifo Institute, the reduction in VAT will increase Germany’s economic output this year by 0.2 percentage points or 6.5 billion euros. For the state, it means tax losses of 20 billion euros – but the demand for consumer goods produced domestically does not increase to the same extent, the economic researchers explained. “All in all, expectations of economic stimulus programs should not be too high,” said Ifo President Clemens Fuest.

Record debt of € 218.5 billion

The second major component of the stimulus package is a bonus of 300 euros for each child entitled to child benefit. The first 200 euros are to be paid with child benefit in September, the remaining 100 euros in October. The child bonus is not counted towards the basic security, but is offset against the tax-free child allowance for higher earners, so that families with less money benefit in particular.

There are further facilities for companies, for example through changed depreciation rules. In addition, they should be able to offset current crisis-related losses better with profits from the previous year and thus have more money in the checkout in difficult times.

The federal government bears most of the costs for the economic stimulus package: Almost 13 billion euros in tax losses will result from the reduction in VAT, and the children’s bonus will add another 5.4 billion euros. To solve this, Finance Minister Olaf Scholz (SPD) wants to take out more loans. In the meantime, record debts of 218.5 billion euros are planned for 2020. The Bundestag is scheduled to adopt the second supplementary budget later this week.

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