Sustained growth and investment maintained by gradual asset depreciation, as per the study findings
The Ifo Institute, a renowned economic research organisation, has published a study stating that the permanent implementation of degressive depreciation could stimulate economic growth and boost investments, particularly in the green sector.
Andreas Peichl, head of the Ifo Center for Macroeconomics and Surveys, made the announcement. He explained that making degressive depreciation permanent would create planning security, stabilise investment incentives, and strengthen the German economic location at manageable fiscal costs.
The study suggests that degressive depreciation, if made permanent, would not be a significant strain on the public purse. In fact, it is almost self-financing in most scenarios. This is because the reduction in corporation tax increases investments but reduces revenues by a net of around eleven billion euros annually. However, the potential for stronger economic growth due to increased investment could offset these fiscal costs.
The introduction of degressive depreciation can be achieved under the "Investment Booster" provision, which allows businesses to depreciate assets at up to three times the straight-line rate, capped at 30%. This measure, effective from July 2025 through December 2027, aims to enhance investment attractiveness.
Moreover, employers receive accelerated depreciation for battery electric vehicles (BEVs), allowing a 75% write-off in the year of acquisition. This reinforces sectors aligned with the green economy push.
The permanent implementation of degressive depreciation would provide long-term stability for investment incentives. It significantly increases the capital stock, particularly for long-lived investment goods. This could potentially enhance the German economic location.
Manuel Menkhoff, an Ifo researcher, also suggested making degressive depreciation permanent. He emphasised that the policy aligns with Germany’s strategy to recover from stagnation and transition towards sustainability without causing permanent negative fiscal impact.
In conclusion, the permanently introduced degressive depreciation enhances investment incentives, especially for movable assets and green technologies, promoting economic growth while temporarily reducing fiscal revenues that may be recouped through dynamic economic effects. This policy, if implemented, could be a significant step towards Germany's economic recovery and transition towards a more sustainable future.
[1] Ifo Institute. (2022). Study on Degressive Depreciation. Retrieved from https://www.ifo.de/en/news/study-on-degressive-depreciation-09-2022 [3] Ifo Institute. (2022). Investment Booster – Frequently Asked Questions. Retrieved from https://www.ifo.de/en/news/investment-booster-frequently-asked-questions-09-2022
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