The debate over relief from high fuel prices in Germany has intensified, with several different measures being proposed. These include cutting VAT on petrol and diesel, reintroducing the fuel discount, introducing a fuel price cap, imposing an excess profits tax and making direct payments to households with low incomes.
In the debate over relief for motorists because of high fuel prices, CDU/CSU parliamentary group leader Thorsten Frei has called for measures that can be implemented quickly from October 1. Speaking on the RTL and ntv programme “Frühstart” on Wednesday, he said cutting VAT on petrol and diesel could be one option. He proposed reducing VAT from 19% to 7%. Alternatively, a renewed fuel discount could be considered.
The state benefits from rising crude oil and retail prices because higher VAT is charged on them, Frei said. “Giving some of that back and charging 7 percent VAT instead of 19 percent would therefore be an obvious measure.” The CDU politician said he did not believe this would require compensatory financing because the state would simply be returning additional VAT revenue to taxpayers.
The Federal Ministry of Finance, however, said this week that, according to its findings so far, higher fuel prices had not resulted in higher tax revenues. A ministry spokesperson said on Monday: “We have monitored this very, very closely over the past few months.”
Frei also proposed reintroducing the fuel discount as an alternative way to provide relief. “That is, of course, an option that can be chosen,” he said. Frei said it could be assumed that the situation in the Middle East would not improve quickly. For that reason, he said, politics needed to address prices. The coalition government had so far rejected reintroducing the fuel discount because of the costs.
He called for rapid action, saying the discussions needed to “focus on how immediate measures can be put into operation by October 1.” He pointed to the fuel discount introduced in the spring, saying the government had managed to implement it within an equally short timeframe. “People do not need the prospect of relief now; they need relief, and that is why we have to step on the gas.” He said the federal government needed to decide on measures “very, very quickly.”
The SPD is calling for a fuel price cap to provide relief for consumers. The measure would have to be implemented by the Federal Ministry for Economic Affairs. However, the ministry has serious concerns about the proposal. Ministry sources described both a fuel price cap similar to the one used in Luxembourg and a so-called excess profits tax as “problematic” on Tuesday evening.
The ministry said the Luxembourg model could not be transferred to Germany because of the difference in size and the different market structures. “Such an intervention would also entail legal and financial risks for the state,” the ministry said. The ministry also referred to Poland and Austria, which both introduced their own price caps in the spring but later withdrew them for various reasons.
Federal Finance Minister Lars Klingbeil (SPD) has said he has been advocating for an excess profits tax at EU level for weeks. However, the Federal Ministry for Economic Affairs, headed by Economics Minister Katherina Reiche (CDU), rejects an excess profits tax on mineral oil companies from both a legal and economic perspective.
The ministry said the legality of a similar EU measure introduced during the 2022 gas crisis is still being reviewed by the courts. “An excess profits tax at EU level would also have to be adopted as a tax under the unanimity procedure,” the ministry said. It added that this was hardly realistic. The ministry also said taxing excess profits was problematic from an economic perspective because such profits could “hardly be clearly distinguished in practice.”
The taxation would therefore lead to “arbitrary burdens and harmful distortions of the production structure,” the ministry said. Chancellor Friedrich Merz has also rejected an excess profits tax.
Economics Minister Katherina Reiche (CDU) has suggested direct payments to households with low incomes in recent days. The measure would have to be implemented by the Federal Ministry of Finance.
The debate over possible relief for consumers has been reignited by the sharp rise in fuel prices following the further escalation of the Iran war. The proposals come from different members of the government and coalition. Frei has proposed a VAT cut or renewed fuel discount, the SPD is demanding a price cap, Klingbeil is advocating an excess profits tax at EU level, and Reiche has suggested direct payments for low-income households.
At the same time, the Federal Ministry for Economic Affairs has raised legal, financial and economic concerns about a Luxembourg-style price cap and an excess profits tax.
Chancellor Friedrich Merz (CDU) had announced on Tuesday that the government would consider relief because of high fuel prices. He said it would “take taxes and charges into consideration” that make fuel more expensive and that a proposal would come “very soon.”
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