The package calls for a temporary reduction in the country's value-added tax from 19% to 16% that will go into force from July 1 until Dec. 31. The federal government also agreed to raise taxes on highly polluting cars as an incentive for consumers to shift to cleaner vehicles.
The announcement of the tax changes follows an agreement between the center-right Christian Democrats bloc and the center-left Social Democrats that was reached last week.
Speaking at a webcast news conference in Berlin, Finance Minister Olaf Scholz said he was "very confident" that the tax reduction would be passed on to consumers through lower prices.
The government also approved a measure that raises the amount of money companies can claim back on taxes paid last year. In addition, the new tax measures increase the extent to which companies can depreciate investments this year and next year.
In a statement, the Finance Ministry said this move gives companies "the opportunity to reduce their tax prepayments and take advantage of liquidity quickly." This "degressive depreciation" system will create business benefits and incentives that will "ensure the necessary stabilization of the economy in the current investment period," the ministry said.
At the news conference, Economy Minister Peter Altmaier said he hoped the measure would give both struggling and healthy companies an incentive to invest. This investment will be crucial in helping the German economy rebound from a sharp decline caused by restrictions on economic activity and personal movement that were put in place to stop the spread of the coronavirus, which causes the disease COVID-19. The European Commission said in May that German economic output is expected to shrink by 6.5% this year.
The government separately agreed on a measure that would progressively raise the tax on cars depending on their carbon dioxide emissions. This measure will come into effect on Jan. 1.
The government measures include a clause that would extend the statute of limitations for serious tax crimes to 30 years. Scholz said earlier this week that the change should help prosecutors more thoroughly investigate offenses in a type of dividend fraud known as cum-ex, which has resulted in a broad international investigation and recent criminal convictions in Germany.
--Editing by Vincent Sherry.
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