Govt announces tax credits and support worth €7 bln annually to strengthen economy in transition

The German government coalition has unveiled a ten-point plan to strengthen the country’s economy and stimulate climate and energy efficiency investments. The announcement  includes tax credits and other financial support worth 7 billion euros per year. At a two-day retreat near Berlin, the coalition of Social Democrats (SPD), Green Party and Free Democrats (FDP) presented the paper of proposals. It includes the “Growth Opportunities Act” with several billions of euros in tax credits, as well as new direct financial support for climate and energy efficiency investments through a so-called “investment premium”. Germany was in a “challenging economic situation” with high interest rates, weak exports, and a difficult global competitive situation, said economy minister Robert Habeck. “Now we have to send the signals that it is worth investing in this country.”

The document also mentions measures and instruments already in place, such as the “Climate and Transformation Fund” with 58 billion euros for climate action in transport, buildings and industry in 2024. The coalition has not yet announced an agreement on industry electricity price subsidies – the so-called “industry power price” – which is contentious within the parties. The ten-point plan includes the government’s aim to ensure affordable electricity for industry, but cautions that “permanent subsidies are not the solution” – in line with the view of Chancellor Olaf Scholz (SPD). Economy minister Habeck (Greens), as well as the SPD parliamentary group, have advocated for industry power price subsidies for a transitional period. Wolfgang Große Entrup, head of the chemical industry association VCI, said that the government’s ten-point plan must be only the beginning of a more long-term programme, “accompanied by a short-term solution: the industry power price.”

The German economy looks set to remain on a low-growth track in the coming months even though challenging factors such as price inflation and supply chain problems appear to be receding, the economy ministry said in a recent analysis. In the long term, the country’s energy-intensive industry could be under particularly intense pressure as regions with better conditions for renewable energy increasingly attract businesses.