It also also foresees doubling incentives for electric cars purchasing, improving railways and building out 5G data networks.
"The size of the package will amount to 130 billion euros for the years 2020/2021, 120 billion of which will be spent by the federal government", Merkel said during a news conference late Wednesday after coalition meetings over stimulus measures to boost the severely-hit economy. "It's about securing jobs, and keeping the economy running, or getting it going again".
For his part, the country's prime minister, Olaf Scholz, said the government would work to return its debt to GDP ratio to 60% after the expected increase to about 80% in the wake of the crisis.
A previous stimulus package in response to Covid-19 pandemic, approved in March, had included €1.306trn in fresh borrowing to finance social spending, funding to purchase stakes in hard-hit firms, loan guarantees and liquidity support for German companies.
The package also establishes a €50 billion fund for addressing climate change, innovation and digitization within the German economy.
With new infections sharply dropping, Europe's biggest economy began easing social restrictions in early May, allowing shops to reopen while restaurants and tourist businesses are taking the first tentative steps.
To boost consumer spending, Value-Added Tax 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.
"It had to be a package of measures that contained a view to the future".
Meanwhile, companies in sectors hardest hit by the crisis - including hospitality, tourism and entertainment - will receive "bridging help" worth 25 billion euros in total from June to August.