BERLIN (Finance) – The German cabinet has agreed to temporarily slash value-added tax and give parents a cash handout of 300 euros per child as part of its 130 billion euro (116 billion pounds) economic stimulus package, a senior government official said on Friday.
Europe’s largest economy has taken after battering after many firms went into lockdown in March to help slow the spread of the coronavirus. The economy is expected to shrink by 6.3% this year – marking its worst recession since World War Two.
Chancellor Angela Merkel’s cabinet agreed at a special meeting on Friday to cut VAT to 16% from 19% for all goods from July 1 until Dec. 31 in a bid to boost consumption – a measure is set to cost around 20 billion euros, the source said.
Both measures are part of a wider package that the German government announced last week and which the DIW institute has said could boost economic output in Europe’s largest economy by 1.3 percentage points both this year and next.
The German Finance Ministry said the German government had on Friday also approved a draft law to change the motor vehicle tax. From the start of 2021, new cars with higher CO2 emissions will be taxed more than those with lower emissions.
Sources in the coalition and federal states have told Reuters that the German upper and lower houses of parliament are aiming to hold special sessions on June 29 to pass the package.
German Finance Minister Olaf Scholz is considering borrowing up to another 50 billion euros to finance Berlin’s bumper stimulus package, a senior official with knowledge of the discussions told Reuters.
(Photos syndicated via Reuters)