_ JC Kofner, Economist, MIWI Institute. Munich, 6 June 2025.
The black-red debt coalition of CDU/CSU and SPD has chosen an ambitious title for its draft law “for a tax-based immediate investment programme to strengthen Germany’s economic location.” Yet on closer inspection, the so-called “investment booster” reveals itself to be a toothless attempt to improve the dismal economic situation in Germany. This commentary highlights why the coalition’s measures fall far short of expectations, why the economic situation is so catastrophic, who is responsible for it, and why, above all, the Mittelstand (SMEs) hardly benefits from this programme.
What is the debt coalition planning?
The draft law includes several measures which, according to Federal Finance Minister Lars Klingbeil, are intended to stimulate the economy:
- Investment booster (declining depreciation): Companies are allowed to use a declining depreciation rate of up to 30 percent for movable assets acquired between July 2025 and January 2028. This is supposed to make investments more attractive by allowing companies to write off costs faster.
- Corporate tax cut: Starting in 2028, the corporate tax rate will gradually be reduced from 15 to 10 percent by 2032, aiming to make corporate taxation internationally more competitive.
- Retention tax rate reduction: The tax rate for retained earnings of partnerships will be reduced in three stages from 28.25 to 25 percent by 2032, to strengthen the equity base.
- Research funding: The tax research allowance will be expanded, the assessment base raised from 10 to 12 million euros, and overhead and operating costs will be included at a flat rate of 20 percent.
- E-mobility: A mathematically-degressive depreciation scheme is introduced for electric vehicles (75 percent in the acquisition year, 10 percent the following year, etc.), and the price limit for tax-favoured e-vehicles will increase from 70,000 to 100,000 euros.
The coalition promises to create “planning certainty” and “investment incentives” with these measures. But the economic reality in Germany shows that these measures are nowhere near enough to address the deep-rooted problems of the country’s economic location.
The dismal economic situation: figures and culprits
Germany’s economy is stuck in a permanent crisis, exacerbated by multiple home-made factors. According to the Stiftung Familienunternehmen, Germany has dropped from 9th place (2005) to 17th out of 22 industrial nations (2025) in the country index. Since 2019, GDP has stagnated, industrial production is over 25 percent below the pre-2018 trend. According to ZEW, almost 200,000 companies closed in 2024, the Federal Employment Agency reports a loss of 361,000 industrial jobs since 2019, and a study by EY predicts a further 100,000 job losses by the end of 2025. IHK surveys show that 35 percent of companies invest abroad, especially in the USA, where energy prices, taxes, and bureaucracy are significantly lower.
Gross investments fell, adjusted for inflation, from 910 billion euros (2022) to 855.4 billion euros (2024), and among SMEs even from 222 billion euros (2019) to 200 billion euros (2024). At the same time, according to the Bundesbank, the net outflow of direct investments abroad since 2019 amounted to over 683 billion euros, at least a quarter of which went to the USA – driven by cheaper energy prices and lower taxes.
The main reasons for this misery are:
- Energy transition and high energy costs: The energy transition, driven by CDU/CSU and later the traffic light coalition, has made Germany one of the most expensive energy locations. The phase-out of nuclear energy (decided under Merkel) and the CO₂ levy (introduced in 2021 with CSU participation) have caused electricity prices to explode. Germany has the highest electricity prices in the OECD, averaging 18 cents/kWh for industrial companies (2025), compared to 7 cents/kWh in the USA. The average gas price for industry doubled from 4 to 8 cents per kilowatt hour between 2019 and 2024.
- High tax and levy burden: The tax-to-GDP ratio in Germany is just under 40 percent, the government spending ratio almost 50 percent – both in the upper quarter of the OECD. Unit labour costs in Germany are a fifth higher than in the USA and three times higher than in China, massively restricting competitiveness.
- Bureaucratic madness: Bureaucracy in Germany is a nightmare for companies. The Supply Chain Act (co-initiated by CDU/CSU) requires answers to 437 questions and threatens with million-euro fines. The combustion engine ban and regulations such as the CSRD directive or the whistleblower protection law mainly burden SMEs with absurd documentation obligations. Bureaucratic burden is the biggest issue for the German Mittelstand, as a DZ Bank survey shows, with over four-fifths of SMEs confirming this. Annual bureaucratic costs for businesses amount to 146 billion euros, according to the ifo Institute.
- Skilled labour shortage: Germany faces a skills gap of 389,000 positions, and three out of five companies cannot fill vacancies. Since 2012, PISA results have worsened, while over 1 million skilled Germans have left the country net since 2005. Politically promoted mass immigration brings few qualified workers and mainly burdens the welfare system.
Analysis of the measures: Much ado about little
The coalition’s “investment booster” brings a “relief” to businesses and entrepreneurs of only 9.6 billion euros per year on average – a joke compared to the 2 trillion euros in tax and levy revenues. That’s a drop in the ocean, not enough to offset the location disadvantages. In detail:
- Declining depreciation: The reintroduction of declining depreciation (max. 30 percent for 2025–2027) is welcome in principle, but far too marginal. For an investment of 100,000 euros, a company saves a maximum of 6,000 euros in the first year. Given high energy, tax, and bureaucracy costs, this is laughable and unlikely to stimulate investment.
- Corporate tax cut: The reduction from 15 to 10 percent by 2032 sounds like progress, but even with 25 percent total corporate taxation, Germany remains in the international midfield, while countries like the USA (21 percent, planned 15 percent), Ireland (12.5 percent), or Hungary (9 percent) are far more attractive. The solidarity surcharge remains an additional competitive disadvantage. Moreover, the time delay (starting 2028, completed 2032) is absurd for an “immediate programme” – a contradiction fit for cabaret.
- Retention tax rate reduction: The reduction from 28.25 to 25 percent by 2032 is positive, but again too little and too late. Partnerships still pay the solidarity surcharge, and the measure remains a marginal advantage that barely strengthens equity formation.
- Research funding: The expansion of the research allowance and the increase in the assessment base are correct but insufficient. Bureaucracy in the application process remains high, and compared to countries like Austria (14 percent direct bonus, low bureaucracy) or the Netherlands (32 percent effective tax relief), German support is conservative and unattractive. Other countries offer simpler, cash-effective models accessible even to start-ups and loss-making companies.
- E-mobility: Promoting e-vehicles through declining depreciation is a prime example of planned economic technology mandates. Since the end of the purchase bonuses in 2023, e-car sales have plummeted, showing how non-market-oriented this shift is. Globally (e.g. at Porsche or BMW), combustion engine research is picking up again, as this technology is far from obsolete. Subsidising e-vehicles at taxpayers’ expense must be rejected, as it weakens the domestic automotive industry and endangers jobs.
Why the Mittelstand misses out
The coalition’s measures are mainly tailored to large corporations and leave SMEs out in the cold. Reasons include:
- High bureaucracy: Applying for depreciation and research allowances requires extensive documentation, which medium-sized companies with limited resources often cannot manage. Large corporations with in-house tax departments benefit much more. In SMEs, bureaucratic processes account for around seven percent of employees’ working time. To meet legal requirements, the Mittelstand spent around 1.5 billion working hours in 2024 – equivalent to around 61 billion euros in labour costs.
- Focus on large investments: Declining depreciation and the research allowance are more advantageous for large projects and capital-rich firms. SMEs, which often invest in smaller machinery or local projects, gain less.
- Delayed effect: Most measures only take effect from 2028, which is far too late for SMEs under current liquidity pressure. Large corporations with long-term planning horizons can better cope with the delay.
- Technology restriction: The promotion of e-mobility mainly benefits large automotive manufacturers investing in e-technology, while many SME suppliers, who are often specialised in combustion engines, are disadvantaged.
Conclusion: An insult to the Mittelstand and the economy
The disastrous location policy of the cartel parties – energy transition, high tax burden, bureaucratic monster, and shortage of skilled workers due to the emigration of qualified personnel – has led Germany into deindustrialisation. The “investment booster” is a cosmetic attempt that in no way solves the structural problems. With a relief of 9.6 billion euros against a 2 trillion euro tax burden (0.48%!), the programme is an insult to entrepreneurs and citizens. The measures are too marginal, too late, and too geared towards large corporations. The Mittelstand, the backbone of the German economy, is left behind.
Without radical reforms in energy policy, taxes, bureaucracy, and skilled labour support, Germany will continue to emigrate – especially to the USA, where conditions are significantly better. The debt coalition pretends to take action with its “immediate programme” while the economy continues to be driven abroad. A real liberation strike is needed, not drops on a hot stone.
Sources:
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