Berlin eyes stimulus policies to boost softening economy
Last Modified: 11:51 AM, Wed Jan 30, 2019

Guy Chazan in Berlin

FT.com. 30 January 2019
Plan to introduce tax breaks for investments in research and development

A senior German minister has called for measures to stimulate the German economy, after the government revised its growth forecast for this year to 1.0 per cent amid fears over a disorderly Brexit and the trade conflict between China and the US.

Peter Altmaier, economy minister and a key ally of Chancellor Angela Merkel, said the downgrade should encourage the government to adopt growth-enhancing policies and so counteract the downturn before it gets worse.

“The good times can continue if we act smartly and prudently,” he said in Berlin while presenting the government’s annual economic report.

Mr Altmaier said the government would table a draft law before the summer introducing tax incentives for corporate investments in research and development and push for a law to speed up planning procedures for big infrastructure projects, which he said would release €3bn of investment funds.

Germany’s economy is still in rude health. It has just entered its 10th straight year of growth, the longest such run since 1966. Unemployment is low, and real wages and pensions are rising. Ministers expect the unemployment rate to fall to 4.9 per cent this year and the number of those in work to increase to 45.2m.

But there are dark clouds on the horizon. Last year, Germany’s economic growth slowed to 1.5 per cent, down from 2.2 per cent in 2017. Mr Altmaier said he now expected growth of just 1.0 per cent this year, the lowest rate since 2013: just a few months ago he was forecasting that gross domestic product would expand by 1.8 per cent.

The minister said the factors leading to the downgrade were largely external: the growing fears of a no-deal Brexit and concern about the simmering trade row between China and the US.

Among other stimulus measures he is championing, Mr Altmaier named a plan to make energy-efficiency improvements to buildings tax-deductible. He is also arguing for special depreciation allowances, a tax incentive that encourages businesses to invest in new equipment. Taken together, he said, the proposed measures would amount to €10bn in investment incentives.

Mr Altmaier said stimulus packages tended to be “expensive, inefficient” and a “flash-in-the-pan” because they were adopted too late — when an economic upswing had already turned into a downturn.

“Instead, it would make sense to think about strengthening growth forces while we’re still in an upturn, but in an upturn that is slowing and has lost impetus,” he said. “The government needs to act smartly to . . . strengthen the growth momentum and encourage companies to invest.”

But one of Mr Altmaier’s key goals is likely to remain out of reach. He has been a strong advocate of eliminating the solidarity surcharge, a tax introduced in the 1990s to pay for German reunification.

Ms Merkel’s “grand coalition” with the Social Democrats has agreed to abolish the so-called “Soli” for 90 per cent of taxpayers from 2021. Mr Altmaier’s party, the Christian Democratic Union, would like the tax to be scrapped for the remaining 10 per cent, too. But the SPD has so far vetoed the CDU proposal.

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Publication: FT.com
Organization: Christian Democratic Union Germany
People: Angela Merkel, Peter Altmaier
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