SHARE
COPY LINK
For members

ENERGY

Who benefits the most from Germany’s inflation relief package?

Germany's traffic-light coalition is set to pass a third relief package this week to directly help people in Germany with the rising cost of living. We break down how much you can expect to save this year as a result of the measures.

Money lies on a radiator.
The German government is set to announce its biggest relief package yet ahead of a hard winter of soaring energy costs. Photo: picture alliance/dpa | Patrick Pleul

With electricity prices in Germany having doubled and the country regularly recording over 7 percent inflation, the federal government is set to pass a third relief package on September 8th. Previous packages included the popular €9 ticket for nationwide public transport, as well as an up to €300 one-off payment for rising energy costs due to be paid out this month.

But the third set of measures are more wide-reaching—and expensive—ahead of what could be a tough winter for heat and energy in the country. Of the €100 billion in planned relief so far, €65 billion is tied up in the latest measures.

READ ALSO:

Some will benefit more than others. Families are set to receive the most support, although most people will receive at least something. German magazine Focus Online calculates that citizens will receive anywhere from a couple hundred euros to a maximum of €2,285 in relief per year—depending on the person’s specific life situation.

READ ALSO: What’s in Germany’s support package for rising energy bills

I’m a single person resident in Germany—what relief should I expect?

Single people in Germany, particularly those taking home more than €1,600 after tax (netto) will get the least amount of support, with assistance measures mostly coming through tax relief rather than direct payments.

Assuming such a person lives in a flat of anywhere between 40 and 70 square metres, the reduced VAT on their gas bills could save them anywhere between €139 and €239 per year. If they have a home office arrangement with their employer and claim the maximum amount of tax credit for this, they can claim up to a maximum of €600 per year—to offset the electricity costs that come from working at home.

Finally, depending on how much a particular single person living in Germany earns, the new relief package will allow people to deduct the mandatory contribution amounts to their public pensions from their taxes. Since such contributions are determined by income, this is one of the few measures in the relief package that will save higher earners more, with anywhere from €43 to €284 in annual savings for a single person.

A single person in a lower income bracket—for example those taking home about €1,200 a month after tax, can expect higher levels of support depending on their specific situation. Social insurance contributions for people holding certain part-time work, or “midi-jobs” in Germany, are typically reduced up to an income of €1,300 a month. The government now plans to increase this amount to €2,000—potentially saving a single midi-jobber over €300 a year.

READ ALSO: EXPLAINED: The rules in Germany around ‘mini’ and ‘midi-jobs’

Other benefits may also be open to a single person in Germany in a lower income bracket. For example, if they receive a housing allowance, they may be entitled to a one-off payment of around €400 for heating costs this winter.

If they are a student, they’ll be entitled to another one-off payment of €200 to address cost of living increases.

I’m married, living in Germany, and don’t have kids—what relief should I expect?

In addition to any one-off payments a married or partnered couple might expect, such as the heating cost one-off if they receive housing benefits or the one-off payment in the event that one or both of them are students, couples living in Germany can also expect their relief to come mainly through tax relief and credits—with higher overall savings in some cases than a single person might receive.

Assuming they live together in a flat of anywhere between 85 and 103 square metres, a couple living in Germany stands to save anywhere between about €300 and €475 per year on gas costs, thanks to the reduction in VAT on gas. The reductions on their mandatory pension contributions could also be reduced anywhere from about €200 a year to over €700 for the highest earners.

As with singles, couples living in Germany with a Home Office arrangement with their employer can also claim the associated tax credits on top of any other relief they might receive.

I’m married with children and living in Germany—what relief should I expect?

Families living in Germany will, in general, receive the most benefit from the new relief measures.

On top of any one-off payments, reduced pension contributions, or Home Office tax credits they might be able to claim, the savings from the cut in VAT on gas are the highest in absolute terms. Assuming the family lives in a home of between 115 and 180 square metres, the estimated annual savings could be anywhere from between €400 to €650.

The relief measures most specifically targeted to families however, involve the planned increases to child benefits (Kindergeld). Parents will be able to receive €237 per month for their first three children—an increase of €18 per month per child. That amounts to an extra €216 per year over the previous amount for families with one child, and €432 for families with two children.

READ ALSO: Germany to raise child benefits for families with up to three children

What about people who are unemployed and pensioners?

Because people who are unemployed or pensioners are obviously not in work or school, they will not benefit from lower pension contributions, a one-off payment for students, or Home Office credits. The traffic-light coalition is thus increasing the amount of unemployment insurance or Bürgergeld available to them from €449 to €500 per month. That amounts to an increase of about €600 a year.

Meanwhile, pensioners are set to receive a €300 one-off payment on December 1st. In order to keep the payments quick and unbureaucratic, the federal government is planning to pay it out directly through pension insurance.

Member comments

  1. What a joke of a package. Now if only they didn’t get us into this mess in the first place and then try to address it with far left spend programs

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

ENERGY

EXPLAINED: Will Germany set a gas price cap and how would it work?

Rocketing energy prices in Germany have the government looking into a cap on the price of gas this winter. What’s not clear yet is how exactly it would work. We explain some of the possibilities.

EXPLAINED: Will Germany set a gas price cap and how would it work?

What’s happening?

Over the last few months, Germany’s federal traffic light coalition has been busily putting together relief packages totalling €100 billion to help residents deal with rising inflation and rocketing energy bills.

So far, the money has gone into everything from cheap public transport—such as the nationwide €9 ticket and its planned successor—to one-off energy relief payments.

But that may not be enough this winter. 

Over the past year, the price of electricity has doubled. Meanwhile, the price of gas—which supplies around a fifth of the country’s electricity and heats around half of German households—has nearly quintupled. 

Politicians outside the federal government, from the opposition conservatives federally to Berlin’s Social Democrat Mayor Franziska Giffey, have been calling for a cap on either the price of gas specifically or the price of energy overall.

Last week, reports emerged that Finance Minister Christian Lindner had set up a working group looking at a possible cap. Chancellor Olaf Scholz has since confirmed that a commission had started work and would come back with proposals soon.

READ ALSO: KEY POINTS: Everything Germany is doing to help relieve rising energy costs

What might a cap look like?

There’s many different forms gas price cap—or Gaspreisdeckel—could take.

Some politicians, like Berlin Mayor Franziska Giffey, have even called for an Energiepreisdeckel—or a cap on the price of all energy.

Berlin Mayor Franziska Giffey has been one of the major state leaders calling for a cap on energy prices. Photo: picture alliance/dpa | Wolfgang Kumm

However, most political discussions so far in both the governing coalition and opposition involve whether and how to cap the price of gas—not whether to cap the cost of energy as a whole.

READ ALSO: German word of the day: Deckel

Some countries, like Spain and Portugal, set a maximum price that producers—which generate the actual gas or electricity—can charge to suppliers. These are the firms that then deliver the electricity or gas to consumers, whether they’re private households or companies.

The other way of capping the price is to set a maximum amount that suppliers can charge consumers. The risk with either model is that electricity companies could end up paying more in costs than what they get back from consumers, making their business model unviable.

That’s why the German government is looking at setting a cap on what consumers would pay per kilowatt hour of consumption. Consumers pay everything up to that cap. If and when the market price of gas goes above the set cap, the government would step in and pay whatever the difference is between the capped amount the market price.

For example, German price comparison website Check24 estimates that a model German household is using 20,000 kWh a year at a price of 21.9 cents per kilowatt hour. That would cost that family €4371 annually now compared to €1316 a year ago.

If the federal government capped that price at 19 cents per kilowatt hour, for example—the family in question would pay 19 cents to their provider while the government would pay the 2.9 cent difference.

Will people still be encouraged to save energy if gas prices are capped?

The conservative Christian Social Union (CSU), which sits together in the Bundestag with the Christian Democrats (CDU), wants a gas price cap that still encourages consumers to do their part to save energy.

Their proposal is to cap 75 percent of what consumers use, designating that amount a “basic” level of consumption that consumers can’t be expected to reduce.

It would then be up to consumers to pay the remaining 25 percent at market price. The CSU argues that allowing the last 25 percent to fluctuate would incentivise people to save energy.

Under a plan like that, a household which cuts out a quarter of their use would, theoretically, pay nothing above the capped level.

CSU Leader and Bavarian Premier Markus Söder is in favour of a gas price cap. Photo: picture alliance/dpa | Nicolas Armer

The SPD-led government of Mecklenburg-West Pomerania and national Green co-leader Ricarda Lang advocate a similar model, but want 80 percent of what households use to be declared a basic consumption requirement. That means that share would be capped.

What’s not clear yet is precisely what amount the government would declare as a basic level of consumption. Experts are currently working on proposals for an amount based on what German households have used over the past few years.

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

How will it be paid for?

This is one of the major questions before the government right now.

Reducing the price of gas by one cent per kilowatt hour is likely to cost around €2.5 billion, but there could be fluctuations based on market prices.

The German Institute for Economic Research’s Marcel Fratzscher told broadcaster RTL and ntv that the government was looking at a price tag of anywhere between €30 billion and €50 billion to have a real impact on household budgets.

Both CSU Leader Markus Söder and Berlin Mayor Franziska Giffey have called for the federal debt brake, which limits the amount the government can borrow, to be suspended to pay for the gas price cap.

Many in the SPD and Greens, which form part of the Scholz government, agree.

But the liberal Free Democrats, led by Finance Minister Christian Lindner, are opposed so far. However, Lindner has recently acknowledged that he is largely alone in rebuffing the plans. 

A possible tax on windfall profits by energy companies is also being floated to pay for any possible gas price cap.

Although the debt brake is enshrined in the German constitution, it can be suspended in emergency situations—such as in March 2020, when the Bundestag suspended it to pass its first Covid-19 rescue package.

SHOW COMMENTS