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MONEY

Who benefits the most – and least – from Germany’s energy relief measures?

Germany's traffic-light coalition has put together two packages of relief measures to offset the spiralling cost of living - but how much impact will it actually have on the people it's designed to help?

A radiator with euro bills.
A radiator with euro bills. Photo: picture alliance/dpa | Patrick Pleul

As Russia’s brutal invasion of Ukraine compounds the energy crisis and the cost of living, the lowest income households in Germany have been struggling to pay their bills, while others are finding their earnings squeezed more and more each month.

“The Ukraine war is making us all poorer,” Finance Minister Christian Lindner (FDP) said in a candid assessment of the situation in early March. To try and offset the impact on German households, the traffic-light coalition has put together two successive energy relief packages.

The first, which was announced at the end of February, included a swifter abolition of the Renewable Energy Act (EEG) levy, an increase in the the tax-free allowance and a tax-deductible employee lump sum, and an increase in the commuter allowance, among other measures.

The second package followed at the end of March, consisting of a €300 allowance for workers, a subsidy for children and social welfare recipients, a €9 monthly travel ticket and a temporary tax cut on fuel. 

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

But how much will the measures set out in the package really benefit German households – and will the impact be spread evenly across different income brackets?

These were the questions that the Macroeconomic Policy Institute (IMK) set out to answer in a new study. According to the IMK, the nearly €30 billion worth of social measures are relatively socially balanced, with households from different income brackets benefiting differently from different measures. However, one group is noticeably underrepresented in the relief package: pensioners. 

Here’s what the IMK found in its investigation. 

Families and low-income earners will benefit most

Households with low and medium incomes and families with children will benefit the most, the institute predicts.

The IMK predicts a 6.2 percent rise in inflation in 2022 and explains that not all of these rising costs will be compensated for by the traffic-light coalition’s relief package. 

“However, the relief is socially balanced in that a particularly high proportion of the additional expenditure on energy is compensated, especially for households with low and medium incomes and for families,” the institute wrote.

Family with kids

A family sit together in the living room at winter time. Families with two earners on low- and middle-incomes are set to benefit the most from the measures. Photo: picture alliance/dpa/Techem GmbH | Techem GmbH

According to the IMK, this means that for a family with two employees and a below-average net income (between €2,000 and €2,600), 90 percent of the additional expenditure will compensated by the subsidies and tax breaks.

With a medium monthly income (€3,600 to €5,000 net), 77 percent of additional expenditure would be compensated. Single parents with an average income would also see about 70 percent of their additional costs offset by the measures. According to the IMK, high-income earners without children will receive the least. However, even this group will see 44 percent of their added costs compensated for. 

Little relief for pensioners

The relief package also has a slightly smaller impact on households with single earners: for average earners with a net monthly income of €2,600 to €3,600, 59 percent of the increased costs will be offset. This is primarily because one of the largest measures set out in the package – a €300 heating allowance – is only set to be paid out to taxpayers.

For the same reason, pensioners are among the groups who will benefit the least from the measures.

“The government should reconsider whether pensioners, for example, should not be compensated more,” says IMK Director Sebastian Dullien.

READ ALSO: 

He assumes that low-income households will benefit above all from the lump-sum payments in the second relief package, while higher earners will primarily benefit from the increase in tax allowances and the tax-deductible lump sum in the first relief package.

Dullien believes that poorer and wealthier people will receive roughly the same amount of relief in euros, though this figure will undoubtedly have a greater impact on low-income earners.

More energy-saving measures needed

In addition to more relief for pensioners, the authors of the study also urge the government to look at measures that would impact energy consumption.

“A speed limit on the Autobahn would bring savings for households and society as a whole and – through reduced consumption – also have a dampening effect on fuel prices and climate change,” Dullien explained.

So far, the government doesn’t seem to be planning any further relief measures – although Dullien has hinted that he thinks it might be necessary.

“For the middle class, further relief would perhaps be desirable – though one has to ask whether the state can afford it,” he told RND. 

A 30km/h zone sign in Hesse

A sign for a 30km/h speed limit in Hesse. Photo: picture alliance/dpa | Uwe Zucchi

To finance the temporary energy tax cut on fuel, Dullien advocates introducing a state levy on petrol and diesel as soon as the price of oil falls again.

For car drivers, this would of course mean that they would have to dig deeper into their pockets even if energy prices normalised.

However, advocates of sustainable transport would undoubtedly see the move as a way to disincentivise car use, refill the treasury’s coffers and help reduce energy reliance on Russia. 

READ ALSO: Russia’s alarming hold over German energy infrastructure

Member comments

  1. Any indication on what happens for the self-employed? Last I saw, there would be a €300 reduction on the Tax prepayment. As someone whose work due to the Pandemic has been heavily reduced, I won’t even make it to the tax point this year, so what happens then?

    1. Hi Richard, we will look into this! As far as I’m aware, if you’re not earning enough to pay tax you would simply get the €300 as a rebate when you fill in your tax return – but we will double check that for you.

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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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