The federal government’s stimulus package will include a total of 130 billion Euros for 2020 and 2021, it was decided on Monday evening by the leaders of the coalition committee.

On July 1 and up until December 31, VAT is expected to drop from 19 to 16 percent. The reduced VAT rate, which applies, for example, to groceries, will be 5 percent instead of 7 percent. This is intended to strengthen domestic demand, the cost amounting to 20 billion Euros.

Families will receive a subsidy of 100 Euros per child, three times. However, the sum will be offset against the child allowance, so that lower-income households with young children will benefit to a larger extent. Social security contributions are to be stabilized with a maximum share of 40 percent. This alone entails costs for the federal government of 5.3 billion Euros. In addition, the levy on energy feed-in is to be reduced so that citizens will pay less for electricity.

Support for future technologies

Anyone who buys an electric car worth up to 40,000 Euros by 2021 will receive 6,000 Euros in funding. Cars with internal combustion engines are not funded. The electronic charging network is being supported with 2.5 billion Euros. There is also money for research and development and future investments. The so-called future package will include over 50 billion Euros, in the coming years.

Deutsche Bahn will be provided with 5 billion Euros in equity. Public transport will receive 2.5 billion Euros. The federal government compensates for municipalities’ losses in trade tax and assumes a higher share of the social costs. However, old municipal debts are not assumed.

Bridging and offset of losses in certain sectors

Sectors which are particularly economically affected by the corona crisis are supported by bridging aids, for three months from June to August, with a volume of up to 25 billion Euros. The hotel and restaurant industry, clubs and bars, parts of the entertainment industry, and the tourism sector could benefit from the reimbursement of fixed operating costs. The cultural sector is funded separately with 1 billion Euros. Other companies will be able to offset losses from 2020 against profits from 2019, so to improve liquidity.

After the decision for the stimulus package, criticism was uttered primarily regarding the reduction in VAT. Economist Peter Bofinger criticized deadweight effects and pointed out that supermarkets and online mail order companies were “already the winners.”