Germany fails to pass tax relief law in coalition spat

By Holger Hansen and Christian Kraemer

BERLIN (Reuters) -Germany’s ruling coalition on Wednesday passed legislation to foster the growth of start-ups but failed to agree on a second law offering wider corporate tax relief worth billions of euros aimed at reviving growth in Europe’s largest economy.

At a cabinet meeting, Chancellor Olaf Scholz’s government passed the Future of Financing Act, to make it easier for companies to access capital markets and also improve their ability to attract skilled workers.

According to a draft seen by Reuters, the law increases the tax allowance for employee share ownership to 5,000 euros ($5,458) from 1,440 euros, to help start-ups attract talent when they are unable to offer high salaries.

But the cabinet failed to agree on passing the Growth Opportunities Act as wrangling in Scholz’s three-way coalition, comprising his Social Democrats, the Greens and liberal Free Democrats (FDP), continued.

According to sources, the talks stumbled on demands by the Minister of Family Affairs Lisa Paus, of the Greens party, to raise spending on child support in tandem with giving more tax benefit to companies.

“Germany needs growth again,” Finance Minister Christian Lindner wrote on social media. “It is therefore regrettable that a cabinet decision on the #Growth Opportunities Act … was not possible.

“Families with children also need good jobs,” he added in apparent reference to the Greens’ demand. The disagreement prompted Lindner to abruptly cancel a press conference to present the law.

“I take a dim view of setting economic support measures or higher defence spending against giving more resources to families threatened with poverty,” Paus told Die Welt newspaper.

According to a draft seen by Reuters, the law envisages tax relief of 7.56 billion, 9.38 billion and 6.5 billion euros respectively in the years 2025, 2026 and 2027.

It also gives incentives to companies to make climate friendly investments, tax incentives for research and allows companies to offset more losses against profits than in previous financial years.

The law, designed to boost growth when the economy is struggling to regain momentum after falling into recession, would still be passed, Scholz said.

“We will pass a Growth Opportunities Act this month,” he told a meeting of a regional business association in Duesseldorf.

($1 = 0.9160 euros)

(Reporting by Holger Hansen, Christian Kraemer, Andreas Rinke, Matthias Inverardi; Writing by Matthias Williams and Thomas Escritt; Editing by Alison Williams and Barbara Lewis)