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ENERGY

Cheap transport and tax cuts: What Germany’s energy relief package means for you

Following the outbreak of war in Ukraine, the German government has decided on an even more far-reaching package of measures to help households with ever-increasing energy costs. Here's what to expect in the coming months.

Cheap transport and tax cuts: What Germany's energy relief package means for you
Passengers wait for a bus at Zoo Station in Berlin. Photo: picture alliance/dpa/dpa-Zentralbild | Monika Skolimowska

Energy prices are rising at an alarming rate in Germany, with consumers feeling the squeeze both at the petrol pump and at home. 

While an energy crisis has been raging for sometime – blamed on supply issues in the aftermath of the Covid crisis – Russia’s bloodthirsty war on Ukraine has only exacerbated the situation.

According to the latest figures from price comparison site Check24, it currently costs around €71 to heat a 50 square metre flat with gas, while people in large family houses could be shelling out around €400 per month.

Meanwhile, petrol and diesel prices have been rising steeply, along with electricity costs. 

READ ALSO: German consumer prices set to rise steeply amid war in Ukraine

To try and get a grip on the crisis and support struggling households, the traffic-light coalition has put their heads together and come up with some sweeping measures to ease this financial burden.

The parties of the SPD, Greens and FDP had all pitched in their own ideas on how best to help people: the Greens set their sights on climate-friendly measures, the SPD wanted to ease social hardship and the FDP suggested tax cuts and rebates for car drivers. 

But it was the policies of the Greens and the SPD that primarily made it into the final package. 

Here are the government support measures that households in Germany can take advantage of in the coming months. 

€300 energy allowance 

Anyone liable for income tax who fall into tax brackets 1-5 will receive a one-time lump sum of €300 to support them with their energy bills.

In a significant change to the original SPD plans to provide a rebate in the 2023 tax return, the money will now be paid out by the employer as an allowance on top of workers’ salaries. In the case of self-employed people, advanced tax payments will be cut instead.

The €300 will be subject to tax, so those who payer a higher tax-rate get correspondingly less and those who stay below the basic tax-free allowance benefit from the full sum.

According to the draft of the measures released by the coalition, the allowance will mean that middle-income earners will be relieved quickly, unbureaucratically and in “socially just” way. 

However, there are still questions about when the allowance will be paid out and whether it will apply to pensioners and people with mini-jobs. 

READ ALSO: German taxpayers to receive €300 lump sum for energy costs

Cut-price public transport

In a coup for the Greens, plans for a fuel rebate for car drivers put forward by the FDP were binned in Wednesday’s cabinet negotiations.

Instead, the government will focus on making mobility more affordable with a heavily subsidised 90-day travel ticket for €9 per month. This will be available nationwide, with the money for the cut-price ticket provided by the federal government.

Announcing the surprise policy on Thursday, Green Party co-leader Ricarda Lang said the move would make German public transport “cheaper than it has ever been”. 

It’s still unclear whether people who already hold monthly or annual tickets will be able to take advantage of the deal in retrospect, and the coalition has not yet explained how the ticket will work or when it will be available. 

Stuttgart metro trains

U-Bahn trains pull up at a station in Stuttgart. Photo: picture alliance/dpa | Sebastian Gollnow

Three-month fuel tax cut

In a nod to the FDP’s car-friendly policies, drivers in Germany will benefit from a reduction in fuel prices via a significant tax cut.

For a limited period of three months, the energy tax on petrol and diesel will be slashed to the European minimum. 

Finance Minister Christian Lindner (FPD) anticipates that the new rates of tax will be around 30 cents per litre of petrol and 14 cents per litre of diesel.

Currently, a litre of petrol costs an average of €2.11, of which around 63 cents is energy tax. For diesel, the average price is around €2.17, of which approximately 47 cents is energy tax. 

If the entirety of the cut is passed onto consumers, petrol prices could sink to €1.78 per litre, while diesel could go down to €1.87 per litre.

Of course, this is a rather big “if”, which is why the government has pledged to keep an eye on how the petrol companies deal with the tax cut over the coming months.

READ ALSO: Speed limits and ‘home office’: How Germany could reduce its oil consumption

Kinderbonus

In order to support families with rising costs, the coalition wants to pay out a one-time bonus of €100 per child via the Familienkasse.

The bonus will be offset against child benefit payments, so families with little money will ultimately receive more than those who are well-off. 

€200 for benefit claimants

People who receive state benefits like Hartz IV or housing benefit will get a one-time payment of €200 to help them pay off their energy bills.

The amount of money provided by the jobcentre for things like heating and electricity will then be reviewed in January 2023 to make sure the figure still aligns with the reality of the energy market. 

Jobcenter Düsseldorf

The entrance to the Jobcenter in Düsseldorf, North Rhine-Westphalia. Photo: picture alliance/dpa | Oliver Berg

Climate money

The SPD, Greens and FDP also want to speed up the introduction of the so-called “climate money” promised in their coalition manifesto last year.

The idea of this is to return the money raised by the CO2 tax levied on high-emission products back to consumers – but the government has been struggling to work out how to implement it.

To try and tackle this problem, the Finance Ministry will be tasked with devising a way to dole out the climate money payments via the tax ID, with the aim of putting a concrete plan together this year. 

The CO2 tax is currently set a €25 per tonne of CO2 emissions but it is scheduled to rise steadily in the coming years, increasing the cost of petrol and diesel as well as the cost of heating with fossil fuels.

READ ALSO: KEY POINTS: Germany’s next government unveils coalition pact

Energy efficiency plans 

In a more long-term plan to limit dependence on Russian gas and move away from the volatile fossil fuels market, the government will implement a number of energy efficiency measures. 

From 2024, every newly installed heating system is to be powered by 65 percent renewable energies, pushing forward the coalition’s initial deadline of January 1st, 2025. 

In addition, the government will create a framework to enable property owners to replace heating systems that are more than 20 years old.

Construction site in Bavaria

Builders work on a Bavarian construction site. Photo: picture alliance/dpa | Karl-Josef Hildenbrand

The coalition also wants to launch a heat-pump offensive to bring more eco-friendly heating solutions to homes, while gradually phasing out gas heating. 

From 2023, the EH55 efficiency standard is also to apply in residential construction. EH55 means that the newly built house or apartment will use 55 percent of the average energy of a non-efficient property. 

Energy efficiency is important in order to become independent of Russian President Vladimir Putin and his gas imports, Greens co-leader Ricard Lang explained.

What didn’t make it into the plans?

As mentioned, the controversial fuel rebate suggested by Finance Minister Christian Linder (FDP) was axed during cabinet talks. FDP proposals for a car-tax rebate and the expansion of natural gas production in Germany were also headed off at the pass. 

However, the FDP did score a win in seeing off the introduction of a potential speed limit on the autobahn, which had been pitched as a climate-friendly measure to reduce costs for drivers.

An SPD idea for a one-off energy allowance for pensions also appears to have been scrapped – though it’s possible that the general €300 allowance or the €200 for benefits claimants will also be expanded to include people on pensions. 

The Greens scored a number of wins in the talks, but have had to backtrack slightly on proposals for an outright ban on gas heaters from 2023.

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

How much is this going to cost?

The package will likely cost the state several billion euros, though Lindner was not yet able to name an exact sum on Thursday as much depends on the take-up of the low-tax fuel and cheap public transport tickets.

However, the Finance Minister said he believed the amount would be comparable to the first relief package.

In February, the coalition put together a support package that included the abolition of the Renewable Energy Act (EEG) levy, a higher commuter allowance, tax cuts and an allowance for the lowest income groups. This is believed to have cost the treasury around €16bn. 

Lindner wants to finance the new relief via a supplementary budget, which he’ll introduce in parliament by summer.

This supplementary budget could also be used to fund financial aid for companies hit by the Ukraine crisis, he hinted.

Though EU competition laws often make it difficult to bail out struggling industries, the bloc has recently adopted an aid framework that allows for comprehensive aid in light of the ongoing war.

An earlier version of this story said the travel ticket cost €9 for 90 days. We edited this to €9 per month for a 90 day period. 

Member comments

  1. Mobility subsidies? great if you live in a town with bus Services etc. Not so much in rural communities. We have a bus 3x a day which goes to the school in the next town and back. No good for working people or those who want to go and do their shopping. We are very reliant on having our own vehicles.

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For members

MONEY

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. 

READ ALSO:

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

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