SHARE
COPY LINK
For members

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.

Log in here to leave a comment.
Become a Member to leave a comment.

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. 

SHOW COMMENTS