Germany agrees tax subsidies for industry worth up to €28bn by 2028

Stay informed with free updates

Simply sign up to the German economy myFT Digest — delivered directly to your inbox.

The German government has agreed a “massive” new package of tax subsidies for industry worth up to €28bn by 2028 as it seeks to further shield beleaguered manufacturers from high energy costs.

The deal is likely to cause consternation in Brussels, where European officials have become increasingly critical of Berlin’s willingness to provide state financial support to business, which the EU says unfairly distorts the common market in Germany’s favour.

The package was agreed by the three parties of chancellor Olaf Scholz’s coalition on Thursday afternoon after months of disagreement.

It follows a €7bn tax subsidy for German business agreed in August and the “protective shield” announced last September for homes and businesses to protect them from spiralling energy costs.

Under the new package, electricity tax relief worth up to €12bn a year is guaranteed for 2024 and 2025, the government said, and may be extended to 2028, pending budgetary planning.

“The federal government is massively relieving the burden on the manufacturing industry in terms of electricity costs,” Scholz said on Thursday.

German industry was long reliant on Russia for cheap gas, which it sought to replace with more expensive liquefied natural gas following the Russian invasion of Ukraine last year. As part of its energy transition, Germany has also shut down its nuclear power plants — with the last reactors being switched off this year.

“We are radically reducing electricity taxes, stabilising network fees and continuing electricity price compensation so that companies can cope better with current electricity prices,” Scholz added.

The government said its package involved a range of changes to the tax code for manufacturing businesses — electricity taxes will be reduced to the minimum level permitted in EU law, direct state subsidies for the 350 Germany companies most exposed to international competition will be extended for five years, and the 90 German companies with the highest electricity bills will be given additional top-up relief.

According to government officials, the total relief package is anticipated to be worth €28bn by 2028.

It is a level of state support equivalent to a controversial plan proposed in May by Green vice-chancellor Robert Habeck to introduce hard caps of energy prices for electricity-hungry businesses.

Habeck, Germany’s economy and industry minister, said at the time that the government should spend up to €30bn until 2030 to hold down prices for manufacturers in order to stave off an “existential” crisis facing German industry.

The plan was strongly opposed by finance minister Christian Lindner, however, from the pro-free market liberal FDP, setting the stage for months of government deadlock.

“With this decision, we are relying on a market-based solution with all its advantages,” Lindner said on Thursday.

The IGBCE, Germany’s union representing energy, mining and chemical companies, criticised the plan, arguing that it was not enough to get German energy-intensive businesses “out of the emergency care unit”.

Michael Vassiliadis, the union’s chair, had been warning that the chemical industry, in particular, would head for widescale job losses without further taxpayer support. The measures, he said, would not lead to sufficiently low energy prices “for companies competing internationally”.

Tanja Gönner, managing director of industrial lobby group BDI, was more positive, arguing it was important that the decisions were implemented quickly “so that companies can plan their production accordingly”.

She also praised Berlin for finding a solution that would “not require state aid approval from Brussels”.

The share price of chemicals giant BASF — which has cited high energy prices for its decision to make “permanent” cuts to its headquarters in Ludwigshafen — was up more than 3 per cent on the news.