It is clear to economists and the campaigners alike: the federal election will be partly decided by the question of who looks as if they can best help the German economy get back on its feet. And an attractive tax system can provide an impulse for investment and growth. This applies not only to domestic companies, but also to potential investors from abroad.

Germany has fallen significantly behind in tax competitiveness over the decades. The corporate tax burden stands at nearly 30%, which is among the highest internationally. The OECD average is 23.6%, and the EU average is 21.1%. Additionally, according to the Ifo Institute for Economic Research, the share of tax revenue from corporate profits in total tax revenue has significantly increased. It now stands at around 13% – which is 3 percentage points higher than a decade ago.

The Federation of German Industries (BDI) repeatedly highlights the disadvantage that German companies face. „The corporate tax burden must be reduced to a competitive level of no more than 25%“, says BDI CEO Tanja Gönner. The next government's tax policy must restore competitiveness and strengthen the business location.

According to the BDI, the disadvantages extend not only to tax rates, but also to the overwhelming tax bureaucracy. A comprehensive reduction of bureaucracy, including the use of AI, and more efficient processes involving taxpayers and tax offices, could relieve companies of unnecessary administrative costs and efforts. „The future federal government should also work on eliminating redundant international tax regulations and reporting requirements for companies", says Gönner.

Corporate tax relief can be achieved through corporate tax or trade tax adjustments. The corporate tax, however, with a rate of 15%, leaves little room for maneuver. The annual revenue of around 40 billion euros is divided between the federal and state governments. The trade tax, with a considerably higher revenue of around 75 billion euros, is solely allocated to municipalities and is one of their main sources of income. Changes here are politically difficult to implement due to the complex set of interests at play. The BDI's proposals for the 2025 federal election suggest that the tax burden could be reduced to a maximum of 25% by fully offsetting the trade tax against the corporate tax, and eliminating the solidarity surcharge.

Although the solidarity surcharge is now only paid by the top 10% of earners, it generates 13 billion euros, which still constitutes around half of the previous level. Business owners and the self-employed account for about 40% of these payments, making the solidarity surcharge a significant burden on the business sector.

For medium-sized businesses and partnerships, the BDI hopes for lower taxation on retained and reinvested profits. Further, the trade tax needs to be streamlined. Numerous add-backs and deductions result in significant bureaucratic effort. The goal is to align the trade tax base more closely with income and corporate tax.

The weakness of the Germany economy is on the radar of all political parties. Their campaign promises take different approaches to improving the situation. CDU/CSU (Union) and the FDP focus on tax relief in income tax, corporate tax, and trade tax. Income tax is relevant for partnerships and thus also for the business sector. Both parties aim to abolish the solidarity surcharge entirely. The proposed relief in income tax is significantly higher with the FDP, at 95 billion euros, compared to 41 billion euros from the Union. For corporate and trade taxes, the Union aims to reduce taxes by 20 billion euros, while the FDP proposes a 17 billion euro cut. Researchers at the German Economic Institute (IW) in Cologne have calculated the fiscal effects of the various proposals.

The SPD and the Greens also see a need for income tax relief – the SPD at 8 billion euros and the Greens at 11 billion euros. However, there are no direct plans for corporate or trade tax rates. Instead, both parties favour an investment incentive – such as the SPD’s proposed „Made-in-Germany bonus“ of 10%. This concept is inspired by the US Inflation Reduction Act, and is considered to be bureaucratically simple. In contrast to tax rate reductions or improved depreciation options, an investment bonus also benefits companies in the loss zone. The IW estimates the fiscal costs of the concept for both parties at 20 billion euros.

The BDI advocates for „long-term, predictable, and increased depreciation conditions“ as investment incentives, including for the economic transformation process. The industry association is also considering the fiscal side: higher depreciation would increase companies' liquidity but not impact tax revenue. An investment premium is also on the BDI’s wish list, along with expanding research grants.

The SPD and the Greens aim to partially offset their tax and investment incentive plans with a higher inheritance tax and the revival of a wealth tax. The IW estimates additional revenues of 3 billion euros from the inheritance tax and 2 billion euros from the wealth tax. The SPD also plans to subject capital gains to the income tax rate again, which, according to the IW, would bring an additional 7 billion euros to the treasury. The Ifo Institute recently warned about the impact of a wealth tax on the economy, cautioning that it would discourage investors and encourage capital flight. According to the Ifo-researchers, a net wealth tax would be obsolete if inheritance taxation on business transfers were properly implemented.