German Chancellor Olaf Scholz's government on Tuesday agreed upon a tax relief plan worth some €7 billion ($7.6 billion) per year for companies in a bid to revive Europe's largest economy.

The program would ease the burden on "small and medium-sized enterprises," the federal government said in a statement.

The plan foresees a four-year corporate tax cut totaling €32 billion.

Russia's invasion of Ukraine takes effect

While Germany's coalition parties have hesitated over the extent of the country's tax cuts, the economy has remained static.

The German recorded flat growth in the second quarter of 2023, having fallen into recession at the turn of the year.

Germany has been hard-hit following Russia's invasion of Ukraine. The conflict has seen German energy prices surge, after Berlin's reliance on Moscow for gas was brought to a halt.

Kickstart for the economy

Scholz said at a press conference that it was necessary for Germany to respond to an ailing economy, to "stimulate growth."

"We'll discuss how to achieve a big boost," Chancellor Olaf Scholz said at the start of a two-day cabinet retreat at Schloss Meseberg, a baroque castle outside Berlin. "The German economy can do more."

The tax cuts are part of a 10-point program and intended to kickstart economic growth whilst making sure companies made the decision to invest in Germany, Scholz said.

The plan includes a premium for energy-saving investments, as well as rule changes to make it easier for companies to write off losses.

As Germany boosts spending, some critics fear that without a new European Union green fund, only larger economies with more fiscal power will be able to push ahead with national subsidies, leaving smaller countries behind.

jsi/lo (Reuters, AFP)

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