West German Chancellor Helmut Schmidt announced yesterday at the end of a three-day cabinet meeting a stimulus program of 12.25 billion marks, or just over $6-billion, in fulfillment of a pledge given July 17 at the Bonn economic summit.
According to the German press office here, cabled information from Bonn indicates that new tax reduction measures account for 4.4 billion marks, or about $2.2 billion of the total, with the rest in increased government spending for a mixture of social and business investment purposes.
The entire package, Schmidt said, amounts to just under 1 percent of German gross national product, and is designed to boost German economic growth - one of the principal goals of the 7-nation summit.
The cost of the package - and hence its stimulative effect - will be partially offset by a previously announced increased from 12 to 13 percent in the German turnover (value added) tax beginning July 1, 1979. The full year effect of 1 percentage point in this tax is 6.3 billion marks, or $3.3 billions.
Schmidt's peckage represents the resolution of some bitter scrapping inside the German Cabinet. Economics Minister Otto Graf Lambedorf had argued vigorously for a bigger net tax reduction, and had been resisted by Finance Minister Hans Matthoefer.
The proposals announced by Schmidt will now have to be approved by the upper house of the German parliament, which is controlled by the opposition to Schmidt's ruling coalition.
The extra spending will be divided between 1979 and 1980, with slightly more in the second year. Although some will be earmarked for investments in business research and technology, much of it also will go for social and welfare programs, including an extension for pregnancy leaves from 8 weeks to six months.
The tax reduction part of the package is an attempt to make the German income tax system slightly more progressive. The tax-free exemption for single persons would be increased from about 3,3000 to 3,690 marks (or from about $1,650 to $1,850). Similarly the exemption for a married couple would be boosted from 6,600 to 7,380 marks (or $3,300 to $3,690).
Details were lacking yesterday, but the Schmidt proposals apparently also included a reduction in sharp tax rate increases at the 16,000 mark ($3,000) level for a single person, and 32,000 marks ($16,000) for a married couple.
Lambador had wanted to go farther in reducing the steepness of the tax curve, while Matthoefer had wanted to boost the turnover tax by at least another point to put more of the German burden on indirect taxes.
Schmidt said that the next borrowing requirement for the 1979 federal budget would be up 5 billion marks to 35.8 billion marks ($2.5 billion to about $18 billion).
Expectations are that the package - if finally approved by parliament - will have only a marginal impact on prospective German growth. Most of the measures probably would have been up through whether or not there had been a summit meeting.