Germany’s coalition government has agreed a €130bn (£114bn) fiscal stimulus package which cuts tax and hands €300 per child to every family.
The move is designed to kick-start the economy which has been severely hit by the coronavirus crisis.
Germany is heading for its worst recession in 70 years with GDP expected to shrink 6.3% this year.
“We must now succeed in boosting the economy,” said Chancellor Angela Merkel.
She said the fact that Germany had seven million temporarily furloughed workers “shows how fragile the situation is”.
As well as a cut in VAT and cash for families with children, the measures include new incentives for buying electric cars.
The package was announced late on Wednesday after 21 hours of negotiations between the partners in Mrs Merkel’s governing grand coalition – which comprises her own Christian Democratic Union, its Bavarian sister party the CSU, and the left-of-centre Social Democrats.
To boost consumer spending, VAT will be cut from 19% to 16% from 1 July to 31 December this year, a move that will cost the German government €20bn alone.
Families will receive a one-time transfer of €300 for each child.
Meanwhile those who buy electric cars will see the government rebate – an incentive designed to encourage consumers to switch to cleaner vehicles – doubled to €6,000.
Businesses will benefit too. Companies in sectors hardest hit by the crisis – such as hospitality, tourism and entertainment – will receive “bridging help” worth €25bn from June to August.
Restaurants, hotels or event management companies could get up to 80% of their fixed operating costs reimbursed if their revenues have plunged more than 70% compared to a year ago.
The new stimulus package comes on top of a €1.1 trillion rescue package agreed in March, which comprised loan guarantees, subsidies and a shorter-hours programme to avoid job cuts.
Mrs Merkel said the support programme would help “the economy to find its feet and grow again”.