German upper house backs corporate tax cuts to boost sluggish economy

Germany's upper house of parliament on Friday approved multibillion-euro tax breaks to support companies and boost investment.

The tax relief package passed in the Bundesrat weeks after it secured passage through the lower house, the Bundestag.

"We must make Germany attractive again for private investment as quickly as possible," said Chancellor Friedrich Merz.

The measures include options for businesses to write off the value of investments in machinery from their taxes, as Merz's government seeks to boost the German economy after two consecutive years of recession.

The package also promises to gradually reduce the corporate tax rate from the current 15% to 10% by 2032. In addition, tax incentives for electric car purchases are planned.

Finance Minister Lars Klingbeil said the tax breaks would make Germany more competitive. "If we ensure new growth, then the state's income will also grow again," he said.

The package is estimated to cost the federal government, states and local authorities around €48 billion ($56 billion) in tax revenue.

To support Germany's federal states, some of which are heavily indebted, the federal government has agreed to cover their tax losses for a limited period until 2029 through the distribution of VAT revenues.

Rent controls decision to come

The Bundesrat also agreed to extend rent controls in popular residential areas until the end of 2029.

The rules, introduced in 2015, limit new rents to tenants in these areas to 10% above the local average.

Both measures were agreed as part of the government's coalition agreement between Merz's conservatives and the centre-left Social Democrats, who took office in early May.