The latest survey by the German Business Panel (GBP) at the University of Mannheim shows that companies in Germany are only moderately positive about the new government’s economic policy. Scepticism prevails, particularly with regard to corporate tax reform, and the trade conflict with the US is weighing on expectations. Following the latest customs agreement, economic expectations have risen slightly and now stand at 1.7 percent for the next five years.
How are companies in Germany faring after the first 100 days of the new government? And how do economic decision-makers assess the economic and tax policy proposals that have been presented? The latest GBP data show that the first phase of the government’s term has been strongly influenced by foreign policy tensions in the wake of the trade conflict with the US and that companies are only moderately satisfied with the coalition agreement overall: On a scale of 0 (very dissatisfied) to 10 (very satisfied), the average rating for economic policy stands at 3.6.
Scepticism despite timetable for corporation tax reform
The cautious result is likely to be related to doubts in the business community about the implementation of some of the reforms that have already been announced. Thirty-nine percent of the companies surveyed consider it unlikely that corporate income tax will actually be reduced as stipulated in the coalition agreement. The reduction from 15 to 10 percent by 2032 was one of the Merz government’s key promises.
‘Companies do not doubt the timetable itself, but rather its implementation under the given conditions – for example, in terms of counter-financing, legal coordination and practical implementation between the federal and state governments,’ says GBP project manager Prof. Dr. Dirk Simons. The agricultural and forestry sectors as well as the health and social services sectors are particularly critical. The transport, manufacturing and construction sectors, on the other hand, stand out with a more positive assessment.
Top priority: income tax relief
From the perspective of economic decision-makers, the top priority is to reduce income tax for small and medium-sized incomes. In contrast to the reform of corporation tax, however, this measure is only vaguely announced in the coalition agreement for the middle of the legislative period. ‘By reducing income tax, companies hope that sole proprietorships and partnerships will also be relieved, that domestic demand will pick up and that the order situation will stabilise,’ explains GBP project manager Prof. Dr Davud Rostam-Afschar.
Second and third on the wish list are a reduction in electricity tax and the digitisation of financial administration. ‘If processes such as tax returns, advance VAT returns or refund processes are recorded completely digitally and processed automatically, companies save time and administrative costs,’ says Rostam-Afschar.
Burden caused by US trade conflict
At 71.2 per cent, almost three-quarters of companies see themselves directly affected by the trade conflict. The burden is primarily reflected in uncertainty: 61.5 percent of the companies affected feel that they are being hampered by unclear demand trends. ‘Experience shows that such uncertainties are reflected in concrete decisions – from investment freezes and price increases to a freeze on new hires,’ says Simons. Whether the EU customs agreement will mitigate such reactions remains to be seen in the coming months.
The GBP data also show how strongly foreign policy tensions dampened the economic upturn in the first 100 days of the new government: immediately after the federal election, the mood in the German economy brightened noticeably. However, the trade conflict with the US led to a significant decline in growth expectations. With the latest tariff agreement, economic expectations have risen slightly again and currently stand at 0.6 per cent for the next twelve months and 1.7 per cent for the next five years.v
Further information on the GBP Monitor
The German Business Panel surveys more than 800 companies and, since March 2024, more than 250 academics on the business situation in Germany, collecting data on 1) expected changes in turnover, profits and investment, 2) business decisions, 3) the expected closure rate in the industry and 4) satisfaction with economic policy. In addition, reports on particularly topical issues are published every three months.
Background information on the German Business Panel
The German Business Panel is a long-term survey panel of the DFG-funded supraregional project ‘Accounting for Transparency’ (https://www.accounting-for-transparency.de/). The Collaborative Research Centre (SFB) ‘TRR 266 Accounting for Transparency’ was launched in July 2019. In May 2023, the German Research Foundation (DFG) decided to extend the SFB for an initial period of four years. It is the first SFB with a focus on business administration. Over 100 scientists from nine universities are involved in the SFB: Paderborn University (spokesperson’s university), Humboldt University of Berlin and the University of Mannheim, as well as researchers from Ludwig Maximilian University of Munich, Goethe University Frankfurt am Main, the Frankfurt School of Finance & Management, the University of Cologne and Leibniz University Hannover. The researchers are investigating how accounting and taxation influence corporate transparency and how regulations and corporate transparency affect the economy and society. The SFB’s funding volume amounts to around 18 million euros.
