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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

Qatar agrees to ‘long-term gas supply’ deal with Germany

Qatar has agreed to send Germany two million tons of liquefied natural gas a year for at least 15 years, officials said Tuesday, as Europe's biggest economy scrambles for alternative supplies after Russia's invasion of Ukraine.

Qatar agrees to 'long-term gas supply' deal with Germany

Qatar’s Energy Minister Saad Sherida al-Kaabi said up to two million tons of gas a year would be sent for at least 15 years from 2026, and that state-run QatarEnergy was discussing other possible deals for Europe’s biggest
economy.

Kaabi, who is also QatarEnergy’s chief executive, said so many European and Asian countries now want natural gas that he did not have enough negotiators to cope.

The talks for the latest deal took several months as Germany has resisted the long-term contracts that Qatar normally demands to justify its massive investment in the industry.

Russia’s invasion of Ukraine in February increased pressure on the German government to find new sources. And the latest deal will not help the country get through the looming winter.

The gas will be bought through US firm ConocoPhillips, a long-term partner with QatarEnergy, and sent to a new terminal that Germany is hurrying to finish at Brunsbuttel.

“We are committed to contribute to the energy security of Germany and Europe at large,” Kaabi told a press conference after the signing ceremony with ConocoPhillips chief executive Ryan Lance.

Lance hailed the accord as “a vital contribution to world energy security”.

READ ALSO: EXPLAINED: What are Germany’s alternatives to Russian gas?

Qatar last week announced a 27-year agreement to ship four million tons a year to China. It said this was the longest contract agreed in the industry.

Qatari officials would not discuss prices but industry analysts have said Germany will have to pay a premium for the shorter contract and the hurried start to deliveries.

Intense demand

Kaabi again stressed the “sizeable investments” that his country has made in extracting gas for deliveries around the world.
But he also said that Qatar was negotiating with German companies to further increase the “volumes” being sent.

The gas will come from the North Field East and North Field South projects that Qatar is developing with ConocoPhillips and other energy multinationals.

North Field contains the world’s biggest natural gas reserves and extends under the Gulf into Iranian territory.

Through expansion in North Field, Qatar is aiming to increase its production by 60 percent by 2027. With increases in international prices, the value of its exports has almost doubled in the past year, state media said
recently.

Asian countries led by China, Japan and South Korea have been the main market for Qatar’s gas, but it has been increasingly targeted by European countries since Russia’s war on Ukraine threw supplies into doubt.

“There is very intense discussions with European buyers and with Asian buyers,” Kaabi said, highlighting the “scarcity of gas coming in the next few years”.

“We do not have enough teams to work with everybody, to cater for the needs” of all countries making demands.

Kaabi said the deal with China’s Sinopec showed that “Asian buyers are feeling the pressure of wanting to secure long-term deals… I think we are in a good position.”

The Brunsbuttel terminal supplies customers of German energy companies Uniper and RWE, and Economy and Energy Minister Robert Habeck said the two firms “have to buy on the world market.

“It is clear that the world market has different suppliers, and it is smart from the companies to buy the most favourable offers for the consumers on the world market, and that includes Qatar.

“But this is not the only supplier on the market.”

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