German Cabinet clears way for temporary sales tax cut

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German Chancellor Angela Merkel attends a special cabinet meeting of the German government about the a stimulus program to booster the German economy after the coronavirus lockdown, at the chancellery in Berlin, Germany, Friday, June 12, 2020. (AP Photo/Markus Schreiber, Pool)

BERLIN – Germany’s Cabinet has approved a temporary cut in value-added tax starting next month in a bid to boost consumer demand in Europe’s biggest economy, a centerpiece of the country’s 130 billion-euro ($148 billion) stimulus package. The finance minister made clear Friday that he doesn't foresee a second stimulus program.

The main value-added tax rate will be cut to 16% from 19% for six months starting July 1, and the reduced rate applied to groceries and some other everyday items to 5% from 7%. Parliament is expected to give the final go-ahead on June 29.

The temporary tax cut was a key and unexpected element of the stimulus package thrashed out in early June by the parties in Chancellor Angela Merkel's coalition. While generally welcomed, it has generated some fears among businesses that they face a difficult rush to prepare for new prices — and calls for the measure to be extended beyond the end of the year.

“It is coming quickly, and that is exactly the right thing,” Finance Minister Olaf Scholz said after Friday's Cabinet meeting. “If we had a long lead-up time, maybe some of those who are speaking out now would say what a difficult situation it was — because in reality, everyone would then wait for the day the value-added tax cut finally came.”

Scholz added that “it makes no sense to organize such a measure indefinitely, or for a very long time.” The Economy Ministry said vendors will be able to pass on the lower tax rate at checkouts without having to relabel all their goods.

The Cabinet also approved plans for a one-time 300-euro per child bonus for families. Other planned measures include help for debt-laden municipalities and increased financial incentives for electric and hybrid vehicles.

Germany went into a recession in the first quarter that it is expected to deepen in the current quarter. However, the government appears confident that its stimulus package will help turn things around in the year's second half.

“I, and I will say we, don't believe in debates about a further stimulus program,” Scholz said. “This is the stimulus program ... we considered very carefully what we are doing."