BERLIN (Bloomberg) --
Germany’s ruling coalition is stitching together a package of measures likely worth around €7 billion ($7.6 billion) to try to lift Europe’s largest economy out of a prolonged slump, according to people familiar with the planning.
Chancellor Olaf Scholz’s government wants to have the package — which would reduce the tax burden on companies — ready in time to secure parliamentary approval before the summer break, said the people, who asked not to be identified discussing confidential negotiations.
Its overall value is likely to be in the region of €7 billion, one of the people said, though they stressed that the discussions are still at an early stage and the amount could change. That would equate to about 0.16% of German output this year. Some economists have calculated Germany needs stimulus of as much as €30 billion to get back on track.
The German Finance Ministry has declined to comment on the plans.
While other major economies are enjoying relatively robust expansion, Germany is being held back by challenges ranging from high energy costs, exposure to the struggling Chinese market and geopolitical tensions triggered by Russia’s war on Ukraine.
“Tax relief is a good idea, but the package can only be a start,” said Veronika Grimm, a member of Scholz’s panel of independent economic advisers. “In addition to lower taxes, bureaucracy needs to be significantly reduced,” she added.
Economy Minister Robert Habeck last month announced that the government had slashed its growth forecast for this year to just 0.2% — a much flatter rebound than the 1.3% it was predicting a few months earlier.
Habeck, a member of the Greens who is also the vice chancellor, identified last year’s court ruling that upended the coalition’s budget planning as an additional factor weighing on the economy.
The government is still trying to win approval for a separate package of measures presented last year that was watered down by regional lawmakers and is still stuck in the upper house of parliament.
Compared with an original volume of around €7 billion, the package — which focuses on small- and medium-sized businesses — is now worth just over €3 billion. The upper house, or Bundesrat, next meets on March 22.
“We are quite optimistic that it will be approved, although in an altered version,” Scholz told reporters Friday at a skilled trades fair in Munich.
“The government would like to have had the whole package but it’s about tax income at the federal, regional and local levels and we have to find a mutual agreement,” he added.
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The new growth package is also designed to help reverse slumping support for Scholz’s three-party ruling alliance of his Social Democrats, the Greens and the Free Democrats, the people said. Backing has surged for the far-right Alternative for Germany ahead of three regional elections in the former communist east in September.
The anti-immigrant party is especially strong there, polling at around 30% compared with about 20% on a national basis. It’s in second place nationwide, ahead of Scholz’s SPD and behind only the main opposition conservatives.