Germany: A Step (But Not A Leap) Forward on Reforms

Research evidence excerpt

Germany: A Step (But Not A Leap) Forward on Reforms

Goldman Sachs Germany

denied. The package also seeks to reduce domestic gold-plating of EU rules, including on

data protection, and raises the supply-chain reporting threshold for firms with more

than 5k employees or EUR 1.5bn in annual revenue, from 1k employees currently, while

easing requirements for small and indirect suppliers.

5. The package also contains an array of sector-specific measures. It aims to improve the

attractiveness of data-centre expansion for municipalities by changing allocation rules

for local business taxes (which are currently based on municipal level employment),

accelerate power-distribution grid expansion and the rollout of smart meters. To

increase housing construction, the government plans to create a federal housing agency

focusing on low-cost housing construction, and it aims to abolish national capital buffers

for housing mortgages to free up bank capital for mortgages.

6. Further steps announced in the reform package are a near-term implementation of

proposals by the commission on modernising the welfare state, particularly streamlining

basic social security to improve labour supply incentives, and a package on tax law

simplification due in autumn. The tax-law simplification and an improved option model

for sole proprietorship to be taxed as limited liability companies could further support

investment, especially alongside the corporate tax reductions scheduled for 2028-2032.

7. Taken together, the reform package delivered smaller tax measures than reports in

recent weeks had suggested, limiting its near-term growth effect. That said, the

measures on labour market reform and red tape reduction could contribute to the

government’s goal of higher medium-term dynamism and growth.