The grand coalition decided last night an increase in the aid with which the German government helps society to overcome the extreme conditions to which the pandemic forces. The value added tax (VAT) will remain reduced to 7% for bars and restaurants until 2022, an extension to the reduction implemented last year demanded by the minor partner of the coalition, the Unión Socialcristiana de Bavera (CSU). Families will receive a new «kindergarten bonus» per child of 150 euros, which will be deposited directly into a bank account, without bureaucracy involved, and with which it expects a new boost to consumption. This payment is in addition to the 300 euros per child already received in October and November and was the main demand that the Social Democratic Party (SPD) brought to the meeting, along with additional support for recipients of public aid Hartz IV that has also been authorized.
The German government has also decided to increase the tax compensation that companies receive for the falls in turnover derived from the partial or total closure of their activities, based on that calculation of the income and expenses prior to the stoppage of their activity, a proposal of the Merkel’s party, the Christian Democratic Union (CDU), which adds to the compensation they were receiving so far, based on 75% of the income declared in November 2019.
The meeting proceeded without heated discussions and was prolonged solely because of the technical budget discussions. While waiting for the members of the grand coalition to present the details of the decisions today, The main criticism advanced by the opposition is that it is about short-term aid and that there is still no long-term plan to support the economy in the post-pandemic era, of which we only know is going to be different than the economic time before the health crisis.
The federal aid package includes grants, loans, capital contributions, and guarantees. Since the beginning of the crisis Some 80 billion euros have been earmarked for this purpose, according to the Federal Minister for the Economy, Peter Altmaier, at the end of January. To this are added the bonuses for reduced hours and tax deductions. The central instrument of the German government to cushion the consequences of the crisis for companies is bridging aid, aimed at small and medium-sized companies, which constitute the backbone of the German economy. Bridging aid is paid in the form of grants that do not have to be repaid and its main objective is that those affected can continue to pay their fixed expenses, such as rent or electricity.
There is also extraordinary financial aid for the months of the second confinement, starting on November 2, for companies, businesses, independent workers, associations and institutions that have had to close their doors.
The € 600 billion economic stabilization fund is aimed in particular at large companies who were in good health and competitive before the pandemic. It is primarily aimed at companies that are important to Germany as a business place and for the job market. Endorsements and guarantees are intended to help strengthen the capital base of companies and overcome liquidity problems. The state can also take a direct stake in companies.
The “KfW 2020 Special Program” has unlimited funds and will run until June 30, 2021. It is aimed at commercial companies of all sizes and freelancers. As a complement to the KfW Special Program, small and medium-sized businesses can receive KfW loans for operational resources and investments in limited amounts until the summer of 2021.
Certain accounting measures are also helped. During confinement, some goods have lost value, such as seasonal products. So that companies can better cope with these losses, They are allowed to post partial depreciation, helping retailers immediately offset losses and deduct them from your taxes. VAT rates have been generally reduced from 19% to 16% percent and up to 7% for the hospitality sector since the beginning of July 2020.
Another very widespread aid mechanism is the subsidy for short-time work, thanks to which private sector employees accept a reduction in working time and wages while the State completes all or part of the lost wages, rapidly reducing costs without the need to lay off employees. The German Ministry of the Economy estimates that the cost of the short-time allowance so far amounts to 23,000 million euros. Finally, the obligation to declare bankruptcy until April 2021 has been lifted for non-solvent companies.