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MONEY

EXPLAINED: What Germany’s relief package against rising prices means for you

The German government recently agreed a raft of measures aimed at providing financial relief to residents facing ever-rising consumer costs. Here's a look at how it affects you.

A person changing the heating setting on a radiator. The coalition has pledged financial support people in Germany.
Wien Energie is reportedly planning to double district heating prices. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

Germany is beefing up financial support measures due to rising costs of everyday goods and staggeringly high energy prices.

Last week, the government, made up of a coalition between the Social Democrats (SPD), the Greens and the Free Democrats (FDP), pledged €13 billion in relief to German residents. 

Ricarda Lang, chairwoman of the Green Party, said that people in Germany should receive support in the short term and in a targeted manner.

“This is a strong package with which we have an offer for the whole society, and I think especially in difficult times offers a form of security anchor for the people in this country,” Lang said. 

But who will benefit from the relief – and what savings are possible?

Abolition of the Renewable Energy Act (EEG) levy

A key point of the package is that consumers in Germany are to stop paying the EEG levy via their electricity bills as early as July. Previously, Germany planned to ditch the EEG at the beginning of 2023.

“We will not leave people alone in the current situation,” Finance Minister Christian Lindner said after announcing the plans last week. 

The EEG levy adds 3.723 cents per kilowatt hour to energy bills. So if you consume 1000 kilowatt hours (kWh) of electricity per year as a single person, this could bring you a saving of €37 plus VAT, i.e. €44. The money will be credited to your annual bill, at least if the providers pass on the relief in full, which is what the coalition is pushing for – but it has not made it compulsory (at least yet).

For a family with a consumption of 4000 kWh, there would be a saving of €180. The money automatically lands in your electricity account, you don’t have to take any action.

A plug

Photo: picture alliance/dpa | Demy Becker

Commuter allowance relief

Due to the high fuel prices, the traffic light coalition plans to raise the commuter allowance which people can claim in their tax returns.

The increase in the lump sum for long-distance commuters (from the 21st kilometre onwards), due on January 1st 2024, is to be brought forward. Commuters will be allowed to claim 38 cents for each km retroactively from January 1st 2022 (an increase from 35 cents).

Note that you can only claim one-way travel per working day.

The Greens in particular were sceptical about this. However, it has now been agreed that a reorganisation of the commuter allowance will be sought before the end of this legislative period, which should better take into account the “ecological and social concerns” of mobility.

When it comes to commuting, let’s take the example of coalition leaders: Robert Habeck (Greens) has his constituency in Flensburg, Lars Klingbeil (SPD) in Soltau in Lower Saxony and Rotenburg an der Wümme. For an employee, it is almost 90 kilometres from Flensburg to Kiel, 100 kilometres from Soltau to Bremen and 50 kilometres from Rotenburg to Bremen.

If workers take 200 days a year to make these journeys to work, they can declare €180 of extra costs in their taxes if they are from Rotenburg, €360 if they are from Flensburg and as much as €420 if they are from Soltau. Depending on the tax rate, this brings relief of between €100 and €200 a year.

Working from home is more favourable for many taxpayers and tax offices. However, the benefits of the increased allowance will only be felt after the submission of the next tax return. Until then consider driving fuel-efficiently, or try to switch to an electric car.

Rise of basic tax-free allowance and lump sum allowance

The increase of the basic tax-free allowance from €9,984 to €10,347 and the increase of the employee’s lump-sum allowance (Werbungskosten-Pauschale or Arbeitnehmer-Pauschbetrag) from €1,000 to €1,200 will also provide some tax relief. These will apply retroactively from January 1st 2022.

This will bring a total of about €120 relief for a single person with €50,000 taxable annual income.

Immediate supplements for socially disadvantaged residents

Children affected by poverty are to receive an immediate supplement of €20 per month as part of child support from July 1st.

Recipients of unemployment benefit II (known as Hartz IV), basic income support and social assistance are to receive a one-time supplement of €100.

The money is supposed to come automatically from the government. However, it is not yet clear when it will be paid out. People who do not receive the children’s allowance (Kinderzuschlag) will have to apply for it to get the money. 

READ ALSO: How Germany plans to help households cope with rising costs

Heating cash boosts

The coalition’s 10-point list also includes a mention of the heating allowance which was already approved by the cabinet.

Recipients of housing allowance will receive €135 as a single person, two-person households €175, and a family of four €245. But keep in mind that you have to be receiving housing benefit to get this allowance. Up to two-thirds of households entitled to housing benefit have reportedly not applied for the allowance. Housing benefit is paid retroactively from the date of application.

Students who receive BAföG will also receive a one-time heating allowance of €115 from June. However, they must submit an application for the support.

Tax assistance in the Covid period.

The ‘home office’ allowance will be extended. It means that those who do not travel to work can deduct €5 per day for 120 days a year from their taxable wages. However, a tax return must be filed to claim this. 

READ ALSO: German government to extend ‘working from home’ allowance

If the employer tops up the reduced working hours (Kurzarbeit) allowance, the top-up is paid net to the employee, as was already the case in the Covid crisis months. 

In 2022, employees in the care sector can receive another tax-free Covid bonus of up to €3,000, which will be paid in addition to their regular salary. 

Minimum wage boost

According to the federal government’s draft law, the minimum wage will be raised to €12 per hour from October. Currently it is €9.85, from July 2022 it will be €10.45 according to the current law. If you work just under 1,600 hours a year, i.e. 130 hours a month, your monthly wage will rise from €1,280 euros to €1,560 euros if you are only paid by the hour.

The minimum wage is being increased in Germany.

The minimum wage is being increased in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

If you are paid for a 40-hour week, you will receive about €2,040 a month from October instead of €1,675. Talk to your employer about the implementation.

And as a mini-jobber, make sure that you do not break the limits with your new hourly wages and end up having to pay taxes and social security contributions. However, the mini-job limit is set to increase from €450 to €520 under the new government. 

READ ALSO:

Reduced working hours (Kurzarbeit) until summer

Anyone who receives the reduced working hours allowance (Kurzarbeit) from their employer can receive this allowance until the end of June.

The maximum duration has been extended to 28 months. As a worker on reduced hours, you are allowed to work in a mini-job at the same time without it being counted towards your short-time allowance.

What happens next?

Some of the measures in the 10-point plan have already been approved in the Bundestag, and the others will be fast-tracked through parliament, the coalition said.

In view of the war in Ukraine, the coalition is also considering further aid to support those who have been economically affected by the consequences of the war. 

Please keep in mind that our explainers are for guidance only and are not intended to take the place of legal advice. 

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ENERGY

Should tenants in Germany be shielded from energy price hikes?

Gas prices have more than tripled in the past year, prompting tenants' rights advocates to call for more social support and a cap on energy costs.

Should tenants in Germany be shielded from energy price hikes?

The German’s Tenants’ Association is calling on the government to put together a new energy relief package to help renters deal with spiralling energy costs.

Gas has become an increasing scarce resource in Germany, with the Economics Ministry raising the alert level recently after Russia docked supplies by 60 percent.

The continued supply issues have caused prices to skyrocket. According to the German import prices published on Thursday, natural gas was three times as expensive in May 2022 as it was in May a year ago.

In light of the exploding prices, the German Tenants’ Association is putting the government under pressure to offer greater relief for renters.

READ ALSO: 

Proposals on the table include a moratorium on terminating tenancy agreements and a permanent heating cost subsidy for all low-income households.

The Tenants’ Association has argued that nobody should face eviction for being unable to cope with soaring bills and is urging the government to adjust housing benefits in line with the higher prices. 

Gas price cap

Renters’ advocates have also joined a chorus of people advocating for a cap on consumer gas prices to prevent costs from rising indefinitely.

Recently, Frank Bsirske, a member of the parliamentary Green Party and former head of the trade union Verdi, spoke out in favour of capping prices. Bavaria’s economics minister and Lower Saxony’s energy minister have also advocated for a gas price cap in the past. 

According to the tenants’ association, the vast majority of tenants use gas for heating and are directly affected by recent price increases.

At the G7 summit in Bavaria this week, leaders of the developed nations discussed plans for a coordinated cut in oil prices to prevent Russia from reaping the rewards of the energy crisis. 

In an initiative spearheaded by the US, the group of rich nations agreed to task ministers will developing a proposal that would see consumer countries refusing to pay more than a set price for oil imports from Russia.

READ ALSO: Germany and G7 to ‘develop a price cap’ on Russian oil

A gas price cap would likely be carried out on a more national level, with the government regulating how much of their costs energy companies can pass onto consumers. 

Strict contract laws preventing sudden price hikes mean that tenants in Germany are unlikely to feel the full force of the rising gas prices this year

However, the Tenant’s Association pointed out that, if there is a significant reduction in gas imports, the Federal Network Agency could activate an emergency clause known as the price adjustment clause.

This would allow gas suppliers to pass on higher prices to their customers at short notice. 

The Tenants’ Association has warned that the consequences of an immediate market price adjustment, if it happens, should be legally regulated and socially cushioned.

In the case of the price adjustment clause being activated, the government would have to regulate the costs that companies were allowed to pass onto consumers to prevent social upheaval. 

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