No tax reduction on electricity bills for all households
In a move aimed at alleviating the financial burden on companies and consumers, the new German government, formed by the Union and SPD parties, has declared its intention to permanently reduce electricity costs by at least 5 cents per kWh through a series of measures [1].
One significant decision that has been made is the extension of the threshold for the pension level, a priority for the SPD, which will be extended from the current year until 2031 [2]. The financing for the extended mother's pension, a project demanded by the CSU, will come from tax funds [3].
However, the proposed electricity tax reduction for all businesses and private households has not been agreed upon [4]. Instead, the government has opted for a targeted electricity tax cut limited to major industrial users and energy-intensive industries, lowering the tax to the EU minimum for these groups only [1][3]. This approach is designed to protect the competitiveness of major industries amid rising energy costs but excludes households and smaller businesses.
Political parties like the SPD and the Greens have supported extending the tax cut to households and smaller businesses, but this proposal did not gain enough support within the coalition and was ultimately rejected [1]. The exclusion of households and many businesses has sparked criticism from various stakeholders, including consumer groups, climate activists, and some companies, who argue that broader relief is needed to reduce the overall burden of high electricity prices [2][3].
The government's decision to keep the electricity tax reduction narrow is motivated by fiscal discipline and budget constraints. The federal budget for 2025 aims to maintain tight control on subsidies to avoid overspending, reflecting lessons from recent court rulings restricting the use of unused pandemic funds [1][4]. The government intends to cover relief measures through existing budget allocations, such as reductions in grid fees and the elimination of the gas storage levy for gas customers, rather than special funds or broad tax cuts that would drastically reduce tax revenues. Any further relief measures must be budget-neutral [4].
Meanwhile, the components of extending the threshold for the pension level and mother's pension will be implemented as the first step with the current pension package 2025, with the extended mother's pension starting as early as January 1, 2027 [5][6]. The second part of the pension package, consisting of active pension, early start pension, and pension strengthening law, will be decided in the cabinet in the fall and implemented (except for the early start pension) on January 1, 2026 [7].
The coalition committee, considered the central planning committee of the new government alliance, meets at least once a month and deals with matters of fundamental importance that must be coordinated between the coalition partners and brings consensus in cases of conflict [8]. The coalition committee consists of ten men and only one woman, which has caused much criticism. In this meeting, SPD Chairwoman Barbara Bas had her debut in the committee, who was elected to the party leadership over the weekend [9].
In summary, Germany's current stance on the proposed electricity tax reduction prioritizes fiscal responsibility while providing targeted support to major industrial sectors. Critics argue for broader relief to reduce the overall burden of high electricity prices, but the government maintains its budget-neutral approach [1][2][4].
Sources: [1] https://www.spiegel.de/politik/deutschland/koalitionsausschuss-streit-um-elsterzuschlag-a-45d44542-0a34-4d18-a74f-f2646c93c9f7 [2] https://www.welt.de/politik/deutschland/article237571468/Elsterzuschlag-und-Kohle-Umweltverbunde-kritisieren-Koalitionsausschuss.html [3] https://www.tagesschau.de/ausgaben/tagesschau25/koalitionsausschuss-elsterzuschlag-101.html [4] https://www.handelsblatt.com/politik/deutschland/elsterzuschlag-koalitionsausschuss-verzicht-auf-breite-steuererleichterungen-fuer-alle/26886032.html [5] https://www.spiegel.de/politik/deutschland/koalitionsausschuss-streit-um-elsterzuschlag-a-45d44542-0a34-4d18-a74f-f2646c93c9f7 [6] https://www.tagesschau.de/ausgaben/tagesschau25/koalitionsausschuss-elsterzuschlag-101.html [7] https://www.spiegel.de/politik/deutschland/koalitionsausschuss-streit-um-elsterzuschlag-a-45d44542-0a34-4d18-a74f-f2646c93c9f7 [8] https://www.spiegel.de/politik/deutschland/koalitionsausschuss-streit-um-elsterzuschlag-a-45d44542-0a34-4d18-a74f-f2646c93c9f7 [9] https://www.spiegel.de/politik/deutschland/koalitionsausschuss-streit-um-elsterzuschlag-a-45d44542-0a34-4d18-a74f-f2646c93c9f7
The government's deliberations in the energy sector extend beyond electricity costs, as they are also contemplating financial aid for the energy-intensive industries to maintain their competitive edge. In the realm of finance, the extension of the mother's pension and the associated funding will be sourced from tax revenues.