Could Germany cut more taxes to stem fuel price hikes?

Diesel prices in Germany have hit records highs, and petrol prices are heading in the same direction. Could the government cut taxes on providers to help ease the burden on car drivers?

Heavy traffic near petrol stations in Germany
Heavy traffic gathers along 'petrol station mile' in Wasserbillig, Germany. Photo: picture alliance/dpa | Harald Tittel

What’s happening?

On Monday, Europe’s largest motor association, the ADAC, revealed that the price of Diesel had soared to unprecedented highs.

As of Sunday, drivers of Diesel cars and vans in Germany have been asked shell out €1.555 per litre to refill their vehicles. The previous record price, which was set on August 26th, 2021, was €1.554 per litre.

Regular petrol prices have also been subject to the same upwards curve, with prices per litre hitting €1.667 per litre on Sunday – just 4.2 cents short of its previous record price of €1.709. 

READ ALSO: Drivers in Germany face record fuel costs

As the below chart from ADAC shows, the price of both commodities has been rising for several months, following an initial slump when the Covid pandemic first hit. Experts believe this is due to both the price of crude oil and the impact of a strong US dollar on Eurozone imports.

Chart showing the price of petrol and Diesel

The price of German fuel in euros, shown week by week. Photo: ADAC

The rising price of fuel isn’t the only strain on consumers in Germany – living costs are rising across the board. Inflation (the cost of everyday goods) has risen dramatically this year, while supply issues are also causing electricity and energy costs to spike. 

All of this means that households in Germany will be feeling the squeeze this winter, and car drivers will have an additional drain on their wallets if petrol and Diesel costs continue to rise. 

Can the government do anything to help?

There are numerous ways that governments on both the European and national level. One is to cut certain government levies that contribute to higher prices at the pump.

For every litre of Diesel sold at the current price, €0.25 of the cost is VAT, around €0.47 is mineral oil tax and around 6 to 8 cents is CO2 tax. Meanwhile, for every litre of petrol, around €0.31 is VAT, approximately €0.65 is mineral oil tax and a similar figure – of around 6 to 8 cents – in CO2 tax.

The Association of Small and Medium-Sized Businesses (MSV) is pushing for cuts on the highest of the levies – the mineral oil tax – in order to ease the pressure on both businesses in the sector and their customers. 

“From the point of view of small and medium-sized enterprises, the mineral oil tax should be temporarily lowered and the commuter allowance noticeably increased,” the chief economist of the BVMW, Hans-Jürgen Völz, told the Funke Media Group.

The explosion in fuel prices is a massive burden on the economy, endangering jobs, growth and prosperity, Völz added. If left unchecked, it could even lead to  a “veritable economic crisis” in Germany, he said. 

Is this likely to happen?

It’s not unlikely – though it could be controversial. 

Last Thursday, the government opted to cut the EEG levy – a green tax used to fund the expansion of renewable energy sources – in response to spiralling energy costs. Some of the tax income will be replaced by government subsidies, though the cuts are still likely to have an impact on the renewable energy sector.

READ ALSO: Households in Germany to get some relief on electricity bills

Over the coming months, this should help to dampen the impact of rising electricity bills, though targeting climate-friendly taxes has caused consternation among those who believe in taking a different route. 

Writing in Handelsblatt on Monday, columnist Kathrin Witsch argued that, while climate change measures aren’t the reason for price rises, they could nevertheless end up falling victim to them as governments rush to slash green levies.

A petrol station displays prices in Czech krona
A petrol station displays prices in Czech krona on the border between Germany and the Czech Republic. Photo: picture alliance/dpa/dpa-Zentralbild | Sebastian Kahnert

“The reason for the price surge for energy and raw materials is neither the CO2 price nor the e-car subsidy or the nuclear phase-out,” Witsch wrote. “Prices are rising worldwide because the economy is recovering much faster than expected after the pandemic and demand is accordingly higher than planned.”

Since renewable energy is generally cheaper, it should now have a competitive advantage over less environmentally friendly types of energy, she argued. However, Germany’s failure to expand wind and solar energy quickly enough has given it few options for tackling the oncoming crisis. 

With car drivers now in focus, moves to slash taxes on climate-polluting substances like Diesel and petrol could also put the government in the firing line in the coming months. 

What are the next steps?

With coalition talks kicking off between the Greens, Social Democrats (SPD) and Free Democratic Party (FDP) this week, petrol and energy price hikes are likely to be a subject of discussion.

To work out how to do this, they could look to Europe, where a number of national governments have already introduced measures to ease pressure on consumers. 

In the meantime, Germany’s outgoing transport secretary, Andreas Scheuer (CSU), is pushing hard for caps on fuel prices – which could be achieved through a mixture of tax cuts and industry regulation.

For lobbyists such as Völz, however, the German government still hasn’t gone far enough. Speaking to the Funke Media Group on Tuesday, he called on politicians to be clear about how and to what extent companies and consumers could be relieved from ever-higher prices.

READ ALSO: Why everything is suddenly getting so expensive in Germany

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REVEALED: The everyday products getting less expensive in Germany

Inflation rates are soaring in Germany - but the jump in prices hasn't affected all consumer goods. Here are a few of the thing that have actually become cheaper in recent months.

REVEALED: The everyday products getting less expensive in Germany

The cost of living is rising at an alarming pace. In April, the inflation rate in Germany hit a stunning 7.4 percent – the highest it’s been in more than 40 years.

In real terms, that means that many people will be getting poorer year by year, unless they’re lucky enough to have got a stellar pay rise at work. 

When you dig down into the nitty gritty of the price rises though, the cost hikes are quite unevenly spread across different goods and services. 

The Local has reported regularly on the dizzying rise in the cost of fuel and energy, as well as the food items – like milk and fresh meat – that are getting more expensive by the week.

READ ALSO: What to know about the latest price hikes in German supermarkets

In April, energy prices rose by 35.3 percent, while prices for heating oil almost doubled. Consumers also had to pay significantly more for fuel (38.5 per cent) and natural gas (47.5 per cent).

Meanwhile, the weekly grocery shop has also gone up in price, with food costs on average 8.6 percent more expensive than in April last year. Edible fats and oils (27.3 percent) and meat products (11.8 percent) were the items that went up most steeply. 

But not everything is going up in price so dramatically, and some everyday items have even got cheaper over the past few years.

Here’s what consumers in Germany are saving money on today compared to last year.

Digital services and software

Some of the biggest drops in prices over the past year have been in the online and digital sectors, which is great news for anyone looking to pick up a new entertainment system or a new Wifi contract for their home. 

According to the Federal Office of Statistics (Destasis), computer operating systems and other types of software saw the biggest drop in price between April 2021 and April 2022. In fact, people purchasing a software subscription or operating system this spring are likely to have paid around 14.3 percent less than customers who purchased the same software last year.

Destatis also noted that Wifi and internet services have become cheaper in recent months. Since April 2021, the cost of “wireless telecommunications services” (otherwise known as Wifi) has decreased by 2.4 percent, while “access to online services has internet” is 0.8 percent cheaper.

Anyone’s who’s been saving up for a new TV, DVD players or satellite dish will also be pleased to discover that these products currently cost around one percent less than they did in April last year. 

Other electronic devices such as headphones, headsets, e-book readers and digital picture frames fell in price by 1.3 percent between March 2021 and March 2022. Renting videos or DVDs became 0.8 per cent cheaper over the same period.


Wine and sweet treats

While it’s true that most of the weekly grocery shop has gone up in price, some surprising items are actually cheaper now than they were a year ago.

In fact, you can get a romantic dinner for two today for less than you could a year ago, since a plate of seafood is 1.6 percent cheaper and a bottle of wine is 0.8 percent cheaper. Home bakers can also enjoy things like puff pastry and baking mixes for less.

People with a sweet tooth seem to be the biggest winners this year: they can now enjoy a bar of chocolate for less, since the price of chocolate has dipped by three percent since last April, and also make savings of 2.3 percent on any artificial sweeteners they buy. 

Milk and white chocolate bars on display in Berlin.

Milk and white chocolate bars on display in Berlin. Photo: picture alliance/dpa/dpa-Zentralbild | Monika Skolimowska

The other treat that is getting cheaper is ice cream. Just in time for summer, the cost of your ice-cream sundae or Eiskugel in Waffel (ice cream in a cone) has dropped by one percent. 

OK, it may only be a few cents lower, but we still think it’s a good reason not to feel guilty about treating to yourself to an ice cream on a sunny day. 

READ ALSO: German consumers to be hit by further price hikes in supermarkets

Household appliances

Though many household expenses have gone up this year, a few common household goods are currently bucking the trend. 

For soup and smoothie addicts, a staple appliance has decreased in price over the past twelve months. In fact, buying an electric mixer, food processor or blender will set you back 2.8 percent less this year than in April 2021.

Prices for electric irons (-0.5 percent), hoovers (-0.8 percent) and “other large household appliances” (-1.2 percent), which includes water softeners, sewing machines and safes, have also gone down.

READ ALSO: The products getting more expensive and harder to find in Germany

Home and contents insurance

At a time when people have been spending more time at home due to Covid-19, the cost of home-related insurance has gone down.

According to Destasis, the price of “insurance services connected with the dwelling”, which means home and contents insurance, has gone down by around 1.8 percent year on year. 

Glasses and contact lenses

Glasses and contact lenses can be a big expense for anyone who needs them, so people with less-than-perfect eyesight will be pleased to know that the price of both of these has gone down slightly in the past year.

As of April 2022, the price of glasses and contact lenses has gone down by around 1.8 percent on average. 

Designers sunglasses at an auction house in Cologne

Designers sunglasses at an auction house in Cologne. Photo: picture alliance/dpa | Oliver Berg

Clothes and shoes have also been trending downwards over the course of this year: back in February, women’s clothes were around 3.3 percent cheaper than they were in February 2021, while men’s clothes had dropped 0.7 percent in price.

Meanwhile, shoes would have set you back around 0.7 percent less on average, with women’s shoes once again showing the steepest decrease at minus 2.9 percent.

Children were the only demographic to buck this trend. In fact, children’s clothes had gone up in price by 1.6 percent in February and children’s shoes were up by 1.4 percent. 

READ ALSO: OPINION: Why Germany’s energy relief payouts are no fix for inadequate social security