Playing catch-up, Germany introduces incentives for corporate research

[May 22, 2019]  BERLIN (Reuters) - German Chancellor Angela Merkel's cabinet backed a draft law on Wednesday with annual incentives worth 1.25 billion euros aimed at supporting corporate research and development and boosting investments in cutting-edge technologies, officials said.

The government's decision to introduce the subsidy scheme will help to strengthen private-sector investment in innovation at a time when growth in Europe's largest economy is slowing, Science Minister Anja Karliczek told Reuters.

Karliczek added that nearly all member states of the Organisation for Economic Co-Operation and Development (OECD) were already supporting private research activities with tax breaks and that Germany had to catch up quickly now.

The draft law from Finance Minister Olaf Scholz envisages incentives worth 625 million euros from the federal government and a further 625 million euros from the 16 regional state governments.

Companies doing basic research or industrial development can apply for a bonus of up to 500,000 euros per year from 2020, with the first payouts planned for 2021 and with incentives not limited to small- and medium-sized firms.

The law needs to be passed by both the Bundestag lower house and the Bundesrat upper house which represents the interests of the 16 regional governments in Germany's federal republic.

Merkel's coalition parties do not have a majority in the Bundesrat which means they need support from opposition parties such as the ecologist Greens, the business-friendly Free Democrats or the anti-capitalist The Left.

Lawmakers from the Greens have signaled support, increasing the chances that parliament will pass the law later this year.

Germany's private sector, which is highly dependent on the large, export-oriented car industry, is at risk of losing ground to more innovative rivals from the United States and China in areas such as electric mobility and autonomous driving.

The Federation of German Industry (BDI) and the International Monetary Fund (IMF) have urged Berlin to provide a better framework and more incentives for corporate research and development to guarantee prosperity and jobs in the next decade.

BDI Managing Director Joachim Lang welcomed the cabinet's decision, but said there was room for improvement.

"The total sum must grow in the long term so that the incentives and overall effects on the economy are bigger," Lang said.

(Reporting by Michael Nienaber; Editing by Toby Chopra)

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