Chancellor's Office Open to Modifications in Electricity Tax Policies
In a surprising turn of events, the current German coalition government, led by the CDU and SPD, has abandoned its earlier plan to cut electricity taxes for households and small businesses due to budget constraints. Instead, the tax relief will now be limited primarily to larger companies.
This decision, initially promised to ease electricity costs broadly, has sparked public backlash. Chancellor's Chief of Staff Thorsten Frei's remarks reflect this shift, as he emphasized the need to consider where the money for such adjustments would come from.
The scrapped plan was projected to cost around 5.4 billion euros in 2025, a significant factor in the government's reversal. German households currently pay about 0.34 euros per kilowatt-hour, ranking Germany among the countries with the highest household electricity prices globally.
In addition to this development, there are proposals to introduce a new surcharge for all electricity consumers, including households, to fund gas-fired power plants set as backups during periods of low renewable energy output. This capacity mechanism, advocated by Economy Minister Katherina Reiche, aims to auction support for up to 20 GW of new gas power capacity by 2030. However, Green Party critics warn this surcharge will increase electricity costs and contradict the coalition's commitments to reduce electricity prices.
No new changes regarding VAT or electricity tax directly for households and small businesses have been incorporated into the recent tax investment bill passed by the Federal Council. The focus of this bill is primarily on business investments and electric vehicle taxation.
However, there is some good news on the horizon. Reductions in network fees are planned for January 1, 2026. Additionally, Thorsten Frei, the Chancellor's Chief of Staff, is open to further lowering the electricity tax if better solutions are found during the upcoming budget negotiations in the Bundestag. He also expressed readiness to discuss the possibility of lowering the electricity tax for private households if suitable opportunities arise and it is generally acceptable within the coalition.
Despite the controversial approach, the coalition maintains that the decisions provide relief for citizens. The relief from these decisions is not limited to the manufacturing industry but applies to all citizens and all parts of the economy. The government is striving to maintain a balance between industrial competitiveness and climate goals, while also addressing fiscal constraints.
[1] Source for high household electricity prices
[2] Source for potential surcharge increase
[3] Source for tax investment bill focus
- The high household electricity prices in Germany are due to the current rate of approximately 0.34 euros per kilowatt-hour, ranking it among countries with the highest household electricity prices globally.
- The potential surcharge increase for all electricity consumers, including households, to fund gas-fired power plants set as backups, could contradict the coalition's commitments to reduce electricity prices, as warned by Green Party critics.
