Grand coalition agrees on additional corona support package

On Wednesday 3rd February, the Große Koalition ('grand coalition') parties, namely the CDU/CSU and SPD, passed a package of additional support for those affected by the COVID-19 pandemic in Germany.

An empty café. Photo: Pixabay


The total of this package came to around 4.5 billion euros and was arranged after a five-hour-long meeting of coalition representatives. However, all parties involved were seemingly intent on the delivery of aid, regardless of the cost to the economy, amid complaints from industries suffering from lockdown restrictions, in particular the hospitality and retail sectors.


Ralph Brinkhaus, the parliamentary group leader of the CDU/CSU Union, interpreted the deal as the government being “capable of action”, whilst Alexander Dobrindt of the CSU hailed the “very constructive atmosphere” and SPD co-leader Norbert Walter-Borjans described it as a “good coalition committee”.


So what did they agree to support German businesses and people?


Businesses


Since the catering industry has been hit hard by the effective ban on hospitality for a large part of the past year, the reduction in VAT to 7% due to end in June has been extended until the end of 2022.


An additional measure named the ‘tax loss carry-back’ allows businesses to offset losses of an increased maximum of 10 million euros from 2020 and 2021 against profits from previous years. This enables businesses to pay less this fiscal tax year, increasing their short term liquidity and cash flow.


The KfW (“Kreditanstalt für Wiederaufbau” or Reconstruction Loan Corporation) is offering a 2020 ‘Special Program’ also for small and medium-sized enterprises. With this, they will be able to receive loans which are exempt from liability.


Finally, a €600 billion Economic Stabilization Fund is set up to support large businesses. German corporations such as Lufthansa, TUI, FTI Touristik and MV Werften have already benefited from this.


Individuals


People working in the cultural sector have been pledged further support in a follow-up to the aid program “Neustart Kultur” worth one billion euros.


Furthermore, adults who receive basic security income support will be granted an extra 150 euros. Easier access to the welfare system has also been extended until the end of 2021.

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Separate from basic security payments, families are expected to receive a 150 euro bonus in child benefits for each child. This is half of the bonus paid to families in 2020.


Analysis


Despite the well-organised support package, the current outlook for the German economy is bleak for many, after multiple lockdown extensions, record Covid-19 daily case and death figures and a slow vaccine rollout. It was recently announced that the German economy shrank by 5% in 2020, after the country was initially viewed as handling the pandemic better than most developed nations. In December 2020, Munich-based Ifo Institute for Economic Research lowered its estimated growth for Germany in 2021 from 5.1% to 4.5%. Furthermore, at the end of January, the German economic minister, Peter Altmaier lowered the government’s expectations from 4.4% to just 3%.


The situation is becoming increasingly tough for certain corners of the country. In an interview with Funke Media Group, Health Minister Jens Spahn stated: "We can't stay in this hard lockdown all winter. We would not tolerate that well as a society". Although Chancellor Merkel asked Germans to “hold on for a while”, in an ideal world, the best form of support would, of course, be an unrestricted society and economy. Many businesses and individuals across the country will hope that this week’s latest edition of aid is enough to cover them for the near future, but will not be necessary for much longer after.

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