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What does Germany’s gas VAT cut mean for you?

Germany is set to lower the tax on gas consumption to seven percent instead of the current 19 percent. But there are also extra charges on the way. We look at what it all means for customers.

Woman cooks on gas stove
A woman cooks on a gas stove. Photo: picture alliance/dpa | Annette Riedl

What’s happening?

The German government announced last week that value-added tax (VAT) on gas consumption is to be cut in a bid to relieve the burden on customers.  

The plans are for VAT on all gas bills – i.e. not just the levy – to be reduced from 19 to seven percent until the end of March 2024.

This reduced tax rate normally applies to certain basic goods such as food. 

READ ALSO: Germany plans to slash VAT bills to seven percent

The government had originally wanted to remove the obligation to pay VAT entirely, but this was not allowed under the EU’s strict rules.

However, Germany also said last week that gas suppliers will be allowed to add 2.419 cents per kilowatt hour to the price of gas from October onwards to help them cope with hugely increased procurement costs. 

Around half of all households in Germany have gas heating.

READ ALSO: How much will Germany’s gas levy cost you?

How does the VAT cut affect the surcharge?

Unfortunately, it looks like bills will still go up – even with the VAT cut. As well as the levy, gas suppliers are hiking up their costs in general so this will also cause misery for households in Germany. 

But let’s look at how slashing the VAT affects the gas surcharge. 

The tweet below by Berlin-Brandenburg broadcaster RBB states: “From October, a gas levy of 2.419 cents per kilowatt hour will be payable.

“This is intended to secure gas supplies and support import costs. Even with the VAT reduction on gas, this means additional costs for many households.”

The table from RBB (click on the link to see the full table in the tweet) gives an idea of the price increases customers in Germany will see with the gas surcharge and VAT cut as prices stand at the moment. 

For example, a person in a 40 square metre home using an average of 5,600 kilowatt hours per year for heating and hot water could have to pay €144.95 extra per year or €12.08 more a month.

Consumers in a 70 square metre home using around 9,800 kWh per year may have to fork out €253.66 extra a year. A family living in a 120 square metre home using about 16,800 kWh a year could have to pay €434.84 extra per year.

Wait – but aren’t there savings on the rest of the bill?

Yes. This is where it all gets a bit complicated. The VAT cut applies to the whole gas bill, not just the levy. But people will still have to pay more for gas in general.

Currently, a sample household with a gas consumption of 20,000 kWh per year pays a total of €3,717, according to comparison portal Check24.

If the VAT drops to seven percent, these costs are reduced by €375 to a total of €3,342.

But there are additional costs. From October 1st the new gas charge of 2,419 cent per kilowatt-hour applies. For the sample household –  an extra €518 is added to their bill – that includes the VAT of seven per cent.

Without the reduction of the VAT, the extra costs would be €576. By lowering the VAT on gas the household would be relieved altogether by around €433.

A person places money in a piggy bank in Germany.

A person places money in a piggy bank in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Patrick Pleul

In the example of the sample household, the consumer would pay more from October onwards – even though the VAT on all gas is lowered. According to calculations by German broadcaster Tagesschau, it works out that the family would pay an additional €143 per year.

However, this is based on current gas prices, which are likely to rise. Yes, we have a headache trying to work out what all this means, too! 

Where does the price of gas stand currently?

In wholesale, a megawatt hour of gas for delivery in September costs €235 – that’s according to the contract for Dutch TTF gas. In August a year ago, the price was around €26. A German household with an annual consumption of 20,000 kWh paid an average of €1,306 in August 2021 – while it is currently €3,717.

Regardless of the further development of market prices, experts believe consumer prices for natural gas will continue to rise. This is because wholesale prices are in some cases significantly higher than what gas customers are currently paying.

Higher prices will particularly affect people who are not on a price guarantee contract or are coming to the end of a contract. 

What else are we paying for?

According to Tagesschau, in addition to the gas surcharge and the rocketing gas prices, consumers will have to pay two more surcharges starting in October: the control energy surcharge will be 0.57 cents per kilowatt hour, and the gas storage surcharge will be 0.059 cents per kilowatt hour.

Control energy is used to keep the gas network stable. A household with an annual consumption of 20,000 kilowatt hours will then have to reckon with additional costs of just under €135 per year for balancing energy and gas storage filling, with seven percent VAT. The surcharges are in addition to the gas levy of 2.419 cents (excluding VAT) per kilowatt hour.

A gas flame on a stove.

A gas flame on a stove. Germany is struggling with a huge energy crisis. Photo: picture alliance/dpa | Marijan Murat

What financial support is there?

All workers in Germany will receive a one-off taxable payment of €300 from September. Those who are employed will receive the energy allowance via their employer. Self-employed people can receive it via the advance tax payment for the third quarter.

In order to relieve lower-income households, recipients of housing allowance are to receive a one-off heating cost subsidy. Those living alone will receive €270, according to a draft bill from the German government.

Two-person households are to receive €350, with €70 more for each additional person in the household. Students, trainees and other eligible people will receive a one-off heating allowance of €230.

Are there any other assistance measures planned?

The German government is currently preparing a third relief package. There are plans for assistance with housing subsidies and tax relief. A permanent heating allowance for low-income households is also in the works. 

READ ALSO: Germany’s Scholz pledges more relief for lowest earners

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MONEY

Wohngeld: How people in Germany can get help with rising living costs

Many households in Germany could be eligible for increased financial support with their rents and bills from next year. We break down who should apply and how much help they could receive.

Wohngeld: How people in Germany can get help with rising living costs

The cost of living is rising across the board, and nowhere is this being felt more than in the home. For over a year, gas and electricity bills have been soaring and people on low incomes have been left wondering how to make ends meet.

While there is support available for people in this situation, it seems that many households in Germany aren’t aware that they could be eligible to apply for Wohngeld, or housing allowance, to help them with their expenses. What’s more, the amount of money people can get is set to rise at the start of next year.

Here’s what you need to know.

What exactly is Wohngeld?

Wohngeld, or housing allowance, is a form of financial aid for low-income households in Germany. It’s intended to help with the general costs associated with housing, such as monthly rents and utility bills.

Even people who own their own homes are able to get support with their mortgage repayments and building management costs (known as Hausgeld). However, they do have to fulfil certain criteria, like earning under a certain amount per month.

Unlike long-term unemployment benefit, which also includes a stipend for rent and bills, Wohngeld is intended for people who don’t rely on any other form of state support. That could include single parents or people with minimum wage jobs who spend a large proportion of their income on rent.

It means that people on jobseekers’ allowance and students with state loans and grants aren’t able to apply for Wohngeld. 

READ ALSO:

How much money can people receive?

That depends on a range of factors such as where you live, how high your rent is and how much money you earn this month. However, one thing that’s clear is that Wohngeld is likely to rise significantly at the start of next year.

On Wednesday, cabinet ministers voted through proposals from Housing Minister Klara Geywitz (SPD) to hike the monthly allowance by around €190 on average. That means that instead of receiving €177 per month, the average household on Wohngeld will receive around €370 per month starting in January. 

It’s worth noting that Geywitz’s reforms still need to clear a vote in the Bundestag, but with the governing coalition of the SPD, Greens and FDP behind the move, it’s likely that they will. 

The Housing Ministry has also put together an online tool that can calculate the amount of Wohngeld each household is entitled to. At the moment, this still calculates the allowance based on the current rates – but it will be updated if the reforms are passed by parliament. 

Who’s eligible for Wohngeld?

That depends on a complex calculation based on factors such as income, the number of people in a household, the size and location of the property and how high monthly housing expenses are. There’s no straightforward income threshold that people can refer to, which could explain why thousands of households who could potentially get Wohngeld never apply for it.

The best way to check if you’re currently eligible is to use the government’s Wohngeld calculator tool. But as we mentioned above, this is still based on the current criteria and monthly rates. 

As well as hiking the monthly allowance, Geywitz also wants to expand the criteria so more households are eligible for Wohngeld.

At the moment, around 600,000 households in Germany receive Wohngeld. This could increase by 1.4 million to two million under Geywitz’s plans. From next year, people earning minimum wage and people on low pensions are set to be among those who are able to apply. 

READ ALSO: EXPLAINED: When should I turn on my heating in Germany this year?

Sound good – where do I sign up?

In general, the states and municipalities are responsible for handling Wohngeld applications. That means you should apply at the local Wohngeldamt (housing allowance office), Wohnungsamt (housing office) or Bürgeramt (citizens’ office) in your district or city. 

If you’re unsure where to go, searching for ‘Wohngeld beantragen’ (apply for housing allowance) and the name of your city or area should pull up some search results that can guide you further. 

Apartment blocks in Berlin Marzahn.

Apartment blocks in Berlin Marzahn. Photo: picture alliance / Matthias Balk/dpa | Matthias Balk

Alongside an application form, you’ll likely have to submit a tenancy agreement, ID, information on your residence rights and proof of any income or state support you already receive. Other members of your household may also have to submit similar financial information. 

You should also be registered at the address you’re applying for Wohngeld for. 

READ ALSO: Germany to spend €200 billion to cap soaring energy costs

Are there any other changes to Wohngeld I should know about?

Anyone already on Wohngeld, or who receives it between September and December this year, is also entitled to a special heating allowance to help with winter energy costs. This is also set to be given to students and trainees receiving a BAföG loan or grant.

For students and trainees, the heating allowance is set at €345 per person. Meanwhile, the amount given to Wohngeld recipients will vary on the size of the household.

Single-person households will receive €415, two-person households will get €540 and there will be an additional €100 per person for larger households. 

This is likely to paid out in January. 

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