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OPINION & ANALYSIS

OPINION: Why Germany’s energy relief payouts are no fix for inadequate social security

The German government wants to ease the cost of living crisis with measures like the €9 travel ticket and one-off allowances. But Brian Melican says Germany would be better off making a benefits system fit for purpose and getting people out of poverty.

An employee at a food bank, known as the Tafel in Germany, carries a box full of fruit and vegetables.
An employee at a food bank, known as the Tafel in Germany, carries a box full of fruit and vegetables. Photo: picture alliance/dpa | Felix Kästle

It’s a well-researched fact that poverty forces people to make poor financial choices. Those who have ready money are able to buy consumables in bulk, cutting costs per unit, and purchase durables of higher quality, which last longer and so give better value over their service life.  Everyone’s heard of the example of footwear: wealthy individuals can afford expensive shoes; those on a tight budget have to buy cheaper ones which wear out faster. The result is that, over their lifetime, they end up spending a higher percentage of their income on shoes than those with better financial resources. 

There is also plenty of research showing that many households on the breadline are aware of false economies – disparagingly referred to as a Milchmädchenrechnung (“milkmaid maths”) – and so try to save up to make bulk buys and invest in higher-quality goods. The problem is that the small sums of money they are able to put aside have a tendency to suddenly get swallowed up elsewhere: something breaks, gets lost or stolen; an unexpected bill needs to be paid. Generally, it isn’t profligacy which thwarts poorer consumers, but unforeseen circumstances.

Long-term unemployed have little to live on

Despite the extensive body of research already available on this, for the last two decades, Germany has been conducting a large-scale field study into the effects of poverty. Yes, it’s been almost exactly 20 years since the Hartz Commission first published its recommendations for the sweeping reforms to Germany’s welfare state enacted in 2005. Since then, the long-term unemployed have been kept on a regime so measly that, five years later, a ruling from our highest court declared it partially unconstitutional. 

A sign at the entrance of the Agentur für Arbeit or Job Centre in Stuttgart.

A sign at the entrance of the Agentur für Arbeit or Job Centre in Stuttgart. Photo: picture alliance/dpa | Christoph Schmidt

For many of us immigrants to Germany, this fact is surprising, shocking even. The country’s reputation abroad is that of a wealthy, comfortable society with high taxation and high social spending – a sort of Scandinavia-light, if you will. What is more, most of us have come to Germany to work: our skills are in demand and few of us remain jobless for more than a few months, during which unemployment benefits are indeed generous.

It’s once they run out that things get tight: if you’ve had the misfortune of being out of work for more than a couple of years, you end up on “Hartz IV”, as basic income support is known, and have €449 a month to live off of. The state pays your health insurance contributions and gives you housing benefit (but only up to a certain threshold), and also covers your heating and water bills. It doesn’t, however, pay for electricity, and even a cursory glance at the way the monthly total is calculated reveals that, no, you won’t have enough left over to buy good shoes: for 2022, the commission which sets the benefit has earmarked €37.26 monthly for clothing; another €38.07 is budgeted for electricity, and €40.47 for transport. (Incidentally, “hostelry services” – i.e. the pub – is pegged at €11.73; life-long learning comes in at €1.62.)

EXPLAINED: Why are Hartz IV benefits so controversial in Germany?

Even in happier times, these sums never left much room for manoeuvre and, as these monthly budgets are only re-assessed every few years, they don’t take account of sudden price rises. As such, in January, Hartz IV went up by €3, or 0.67 percent, from €446 to €449, at a time when inflation was already running at over five percent. That, of course, was still before the invasion of the Ukraine and China’s crazy lockdowns. Now that, to put no too finer point on it, the shit has really hit the fan and prices for everything are skyrocketing, this paltry rise looks downright miserly.

Energy relief measures don’t fix 20 years of meagre state support

Getting a grasp of these figures is an important precondition to understanding why there is a sudden race on in Berlin to introduce all manner of special pay-outs, discounts, hardship clauses etc. In early February, the gas price spike led to a one-off energy relief subsidy for low-income households and the abolition of renewable energy levies on electricity; after that, there were Finance Minister Christian Lindner’s plans to slash the cost of fuel, then the €9 season tickets, then this, then that… 

Yet what might, at first glance, look like a proportionate, perhaps even generous response to a cost-of-living crisis needs to be put in the context of two decades in which a not insubstantial proportion of German society has been kept on a pittance: even before the world went bonkers, many were frequently unable to maintain even a basic standard of living. Besides the poor souls on Hartz IV, there are the elderly ladies living on pensions which amount to even less and the ranks of the working poor, who had to wait until 2015 even for a minimum wage to be introduced – one that is, at €9.50 per hour, one of Europe’s lowest (and is now hurriedly being raised to €10.45). I recently read that, in the last year prior to Corona, 7,986 households in Hamburg had their electricity switched off because they couldn’t afford the bills; even in 2021, during a worldwide pandemic the state government considered so dangerous that it kept everything closed for nearly six months, it allowed 6,821 non-payers to be taken off the juice. 

READ ALSO: German food banks struggle to cope with rising demand

An employee of the VAG (Verkehrs-Aktiengesellschaft Nürnberg) presents a printed draft of the €9 ticket.

An employee of the VAG (Verkehrs-Aktiengesellschaft Nürnberg) presents a printed draft of the €9 ticket. The ticket is one of the government measures to east the cost of living crisis for people in Germany. Photo: picture alliance/dpa | Daniel Karmann

So those on Hartz IV will no doubt be delighted to learn that they are now due a €100 special one-off hand-out (“Don’t spend it all at once!”) and an extra €20 per month per minor in the household (“Won’t somebody please think of the children?”). They can put that aside to pay what is likely to be a vastly increased electricity bill: unless, of course, their shoes wear out, their fridge breaks down, or they’re unfortunate enough to lock themselves out of their flat (my neighbour did that last weekend and it cost him way north of €100…).

What’s astonishing about all of this is that, since the beginning of the pandemic, the state has been splashing money around to a degree that, until 2020, would have had fiscally-conservative German economists up in arms. Moreover, substantial portions of this most recent splurge are not even targeted: I and millions of others who could easily afford to pay for a full monthly season ticket will now be benefitting from a hefty state subsidy every time we get on the bus. The bewildering array of measures announced since January will add several percentage points to our national debt, and yet no-one seems particularly concerned. On the other hand, for two decades now, society’s poorest have been grudgingly allocated meagre sums calculated down to the very last cent – because, apparently, the previous benefits system was costing the country too much. 

I think what is actually costing us is poverty. As we enter an age of permanent crisis, it should be a priority to make sure that even society’s most disadvantaged can afford to keep up a basic standard of living every month, rather than having to be continually bailed out whenever a zoonotic pathogen sweeps over us or some crack-pot dictator goes bananas. Our bargain-basement benefits are a false economy, and this sudden shower of one-off hand-outs is a classic Milchmädchenrechnung. Like a good pair of shoes, in the long run, adequate social security would represent better value.

Member comments

  1. Brian, I am not a fan of 50% of my income being taken away each month and used to cover ‘basic’ living for those as you say, have been jobless for years…..Unemployment in 2020 was 4%, currently businesses are not running at full capacity because they can not find entry labour…… I don’t sense the same symphony as you are looking for in this article, there is employment to be had, i didn’t sign up to support an army of immigrants unemployed for years as you shared in your article.

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ENERGY

When will Germany’s fuel tax cut come into force?

As part of its package of energy relief measures, the German government is hoping to give car drivers a discount at the petrol pump. But how will it work and when will it come into force?

When will Germany's fuel tax cut come into force?

What’s going on? 

It hasn’t escaped anyone’s attention that energy prices have skyrocketed in recent months. Along with eye-wateringly high heating and electricity bills, drivers have also been feeling the pinch at the petrol pump.

Even before the Ukraine war broke out, energy supply issues were driving up prices at petrol stations – a situation that led to the absurd spectacle of Germans driving across the border to Switzerland (one of the most expensive countries in the world) to fill up their tank for less.

In the early weeks of the war, it wasn’t uncommon to pay €2.20 per litre for Super E10 petrol in Germany, while diesel could average as much as €2.29 per litre. This represents a whopping 45 cent increase on petrol prices and 65 cents on diesel prices compared to the same time last year.

To help people struggling with the price hikes, Finance Minister Christian Lindner (FDP) initially pitched the idea of a “fuel discount” that petrol station owners could offer to customers and then claim back from the state. But there was such an intense backlash to this proposal that it essentially fell at the first hurdle and never made it into the government’s package of energy relief measures.

Instead, the government is hoping to give drivers a discount another way: by reducing the energy taxes levied on each litre of fuel for three months. It’s hoping that this will also go some way to reducing petrol prices over summer. 

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

But haven’t fuel prices gone down again recently?

That’s right. But experts don’t think this amounts to a stabilisation in the long term.

Both petrol and diesel prices sunk quite significantly after the initial price shock, but are climbing up steadily again – and according to motorists’ association ADAC, both remain a little over €2 per litre

This means drivers are still paying significantly more to fill up their tanks than they were a year ago, so the upcoming tax cut will no doubt be welcome. 

How much of a discount can drivers expect?

If all of it is passed on to consumers, the cut in energy tax is expected to reduce the price of a litre of diesel by around 14 cents, while a litre of petrol will be reduced by almost 30 cents.

That’s equivalent to a saving of €15 on a 50-litre tank of E10 and €7 on a 50-litre tank of diesel. 

Of course, a lot also depends on the development of the energy market: if prices continue to go up, drivers may not feel they’re saving a great deal, but it should make a difference in the short-term.

According to ADAC, around 48 percent of the cost of a litre of fuel goes directly to the state through the CO2 tax, energy tax, value-added tax (VAT) and other fossil fuel taxes – so tax cuts can make a big difference. 

But the price of purchasing fossil fuels (which has been affected through the war and supply chain issues) and the strength of the dollar are also important factors that determine how much horror drivers experience on their visits to the petrol station. 

Fuel prices in Germany March 2022

Fuel prices at a petrol station in Cologne on March 9th, 2022. Photo: picture alliance/dpa | Oliver Berg

What’s the timeline for this? 

The government is hoping to pass its entire package of energy relief measures in the Bundestag on Thursday and get approval from the Bundesrat on Friday. This will get the ball rolling for many of the measures to launch next month. 

Much like the €9 monthly travel ticket for trains and buses, the fuel tax cut is a time-limited measure, and just like the discounted ticket, it will run from the start of June to the end of August.

Since it’s up to petrol station owners to pass their savings onto consumers, however, experts predict a lag of a few days before drivers start seeing the tax cut reflected in the fuel prices. 

At that point, ADAC is predicting that drivers will go on a manic spending spree, so they’re advising people not to drive in the early days of June with a near-empty tank. If they do, they could face some long queues at the petrol station. 

Aren’t we trying to save on energy at the moment?

Well, quite. With fears growing that Russia could turn off the taps in retaliation for Germany’s support for Ukraine, the message from the government has been all about conserving energy as much as possible in the lead-up to winter.

But by reducing the price of fuel, the same government is essentially encouraging people to use their cars more often, economists say. 

“It is counterproductive to lower petrol station prices in this situation, because then people will drive more,” economist Veronika Grimm told Tagesschau. “And that is exactly the opposite of what they want to achieve.” 

READ ALSO: Russia using energy ‘as weapon’, says Berlin

An ARAL petrol station in Leipzig.

An ARAL petrol station in Leipzig. Photo: picture alliance/dpa/dpa-Zentralbild | Jan Woitas

At this point, you might expect an uproar from the Greens – who are part of the governing traffic-light coalition along with the Social Democrats (SPD) and Free Democrats (FDP). But that uprising seems to have been headed off at the pass by the €9 public transport ticket that will run alongside the fuel discount. 

In fact, Economics Minister Robert Habeck (Greens) has admitted that the tax cut “isn’t the most targeted measure” but says the continued high price of fuel will still put many people off driving.

“Many people are suffering from the high fuel prices,” says Habeck. “They’ll still suffer enough even if the fuel tax is lowered for three months. So in truth it’s not really cheap driving.” 

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

What else are people saying? 

The other major criticism of the fuel tax cut is that it’s likely to benefit the wrong people. 

“Typically, those who drive a lot benefit from fuel rebates,” Grimm told Tagesschau. “And those are the ones who have who have multiple cars. These are typically the higher earners.” 

This has led to criticism that the €3.15 billion that the rebate will cost is essentially a redistribution of wealth to the top of society, rather than the bottom.

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

Obviously, the government disagrees with this assessment. They argue that cheaper fuel will help drivers foot their bills and stimulate the economy at the same time.

The motorists’ association ADAC is also concerned that the measure may lead to queues at petrol stations, but says that drivers can still opt to save fuel of their own accord over summer.

The best way to do this is to pump up the tyres, ditch the roof rack and other unnecessary weight, and drive at a slow, steady speed to avoid accelerating and braking too much, ADAC explains. 

READ ALSO: Germany’s largest car club calls on drivers to ditch their cars

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