German economy to be supported

The German government has agreed on a €130bn fiscal stimulus centered on a significant cut in value-added tax as it scrambles to mitigate the economic damage of the coronavirus pandemic, Report informs, citing Financial Times.

From July 1 until the end of 2020, the standard rate of VAT will be reduced from 19 to 16 percent, and the lower band cut from 7 to 5 percent — a measure that will cost €20bn. The government also plans a €300 one-off “children’s bonus” payment for every child in the country.

The package aims to stimulate consumer demand as Germany comes out of the coronavirus-related lockdown, and public life gradually returns to normal. Thanks to the pandemic, the country is heading for the worst recession in its postwar history, with the gross domestic product set to shrink 6.3 percent this year, according to officials. But ministers believe that without urgent action to ease the burden on companies and taxpayers, the economic damage could end up being worse.

The package will cost €130bn in 2020 and 2021, with €120bn being paid by the federal government and the rest by the country’s regions and municipalities.