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Germany intensifies the rescue to companies and families with more direct aid and reduces VAT to 7% for bars and restaurants until 2023

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The German Government will reinforce with up to 10,000 new million euros the shield to protect families and companies from prolonged restrictions due to coronavirus and to promote economic recovery. There is no date for the entry into force of the new aid package agreed by the three parties that make up the coalition led by the Chancellor Angela Merkel, but its approval by the council of ministers is assured. The collateral damage from the pandemic is palpable and in just eight months there will be general elections.

“We are going to support many companies to promote their recovery after the crisis,” said the Minister of Economy, Peter Altmaier, through a statement in defense of measures that according to the main institutes and economic sectors will not be of much use.

Among the actions agreed by leaderships of the three parties involved – the Christian Democratic Union (CDU), the Bavarian Social Christian Union (CSU) and the Social Democratic Party (SPD) – stand out the reduction of the value added tax -VAT- to 7% for bars and restaurants until the end of 2022. This reduction is in addition to the one applied last year when it went from 19% to 16% in order to stimulate domestic demand. In addition, the recovery of losses for the years 2020 and 2021 was raised to a maximum of 10 million and 20 million euros respectively, in the case of co-financing. “This creates the necessary liquidity in the crisis and is not very bureaucratic in its management,” the agreement states.

The planned VAT cut will benefit almost exclusively the restoration sector, a sector particularly affected by the pandemic and on hold since last November. This decrease will be accompanied by other measures to support small and medium-sized companies, tax relief for the business community as a whole, a package of aid for culture worth 1,000 million euros, and an increase in family assistance . The new premium per child will be 150 euros -Following the 300 euros of last year- and a similar single payment is also planned for the lowest income and recipients of social assistance.

Of the nearly 10,000 million euros that these new measures have in volume, the VAT reduction on gastronomy will amount to about 3,400 million, the check for children 2,100 million, the extension of the deadline for compensation of losses about a billion and aid to people dependent on social assistance 900 million.

For economists, these are headless measures. “The Government is unfortunately working once again to readjust individual screws, instead of making aid to companies as a whole systematic, understandable and equal for all those affected”, criticizes the president from the Institute of World Economy, Gabriel Felbermayr. This economist, who is part of the government’s consulting body, does not understand why gastronomy will receive special aid and hairdressers will not. Nor why is it that the extension of the period for the recovery of losses will only benefit the mediated companies within the limits set.

His colleague and president of the Munich Institute for Economic Research (Ifo), Clemes Fuest, thinks the same. “In addition to gastronomy, there are very pressured sectors, such as retail. They are incomprehensible measures,” he says.

The Confederation of German Industry (BDI) has chosen the qualifier of insufficient. “It does not do justice to the magnitude of the crisis, not even for SMEs”, says the president of the BDI, Joachim Land, for whom the expansion to only 10 million for 2020 is too high for some and too short for others, me Even more so when in other industrialized countries they have been set at 50 million or even an unlimited reduction in losses.



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