German Taxpayers’ Alliance calls for VAT cut to offset electricity costs

As consumers battle with eye-watering electricity costs, the head of the German Taxpayers' Alliance has called for a drastic VAT cut and an abolition of the electricity tax.

A man working from home on a laptop
A man writes on his laptop while working from home. Photo: picture alliance/dpa | Sina Schuldt

Speaking to DPA on Friday, Taxpayers’ Alliance president Rainer Holznagel said that the discussion around high energy costs often neglected to mention how much the treasury benefits from these rising costs. 

This is because higher electricity prices also mean higher income for the government through taxes such as VAT, he explained.

Last year, the federal government earned additional revenue of about €12.5 billion through the newly introduced CO2 price.

READ ALSO: Why households in Germany face even higher electricity bills

Aimed at encouraging people to make more environmental conscious choices, this new levy charges consumers €25 for each tonne of CO2 released into the atmosphere when they purchase products such as petrol and gas.

Holznagel urged the traffic light coalition to make good on its promise to return the additional revenue from the CO2 price to the citizens.

He said this should be done by reducing VAT on electricity to just seven percent. 

Meanwhile, the electricity tax should be cut as far as EU competition laws allow, he said. 

Currently, tax on electricity stands at 19 percent, while the electricity tax adds a further seven percent onto people’s electricity bills. 

Scrapping the EEG levy 

To support households with rising energy costs, the cabinet has recently agreed on a plan to offer a lump sum to lower-income groups in June.

Support is to be given to recipients of housing benefits, students receiving government support (BAföG) and people who are in receipt of vocational training allowances. Housing benefit recipients who live alone will receive €135 and two-person households will receive €175. This will then increase by €35 for each additional person living in the household.

Meanwhile students and trainees will receive a lump sum of €115.

“About 2.1 million people in Germany will receive a one-time heating cost subsidy from the federal government starting this June,” said Construction Minister Klara Geywitz (SPD). Among them, she said, are pensioners, single parents or people who earn little. “They can’t put up with rising energy prices so easily.”

READ ALSO: German government to bring in heating allowance legislation ‘by March’

In an additional move to lower energy costs, the government has also promised to scrap the Renewable Energy Act (EEG) levy – a tax on energy that is used to fund renewable energy projects such as wind and solar. 

The government has already slashed the EEG surcharge by more than 40 percent and plans to scrap it entirely by January 2023 in an attempt to ease the burden of additional energy taxes on households.

But price comparison portals have claimed the effect of this tax cut hasn’t been felt by consumers, who are facing the highest prices in years. 

Discussions are currently underway in the government to end the EEG levy as early as July and not at the beginning of next year as previously planned.

This is being examined legally and financially, the Federal Ministry of Economics told DPA, but a decision has not yet been made. 

When the EEG surcharge is gone, the corresponding billions of euros for the promotion of green electricity will have be compensated for in the budget.

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Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 


What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life