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How Germany Cushions Energy Price Hikes and Inflation | Germany | In-depth news and reporting from Berlin and beyond | DW

The German federal government will spend 65 billion euros ($64.6 billion) on relief measures to help people weather the current energy crisis and inflation.

“I’m very happy with the result,” said Chancellor Olaf Scholz, who saw his personal approval rating plummet. “All this together and many other measures will help us get through the winter together.”

The government coalition made up of the centre-left Social Democrats (SPD), Green Ecologists and Free Democratic Liberals (FDP) presented its compromise on Sunday.

Chancellor Olaf Scholz and Finance Minister Christian Lindner announced the relief package as government approval ratings plummeted

And here’s what people can now expect.

The €300 energy price allowance, which is already paid to all employees regardless of their personal income in September, will be extended to the country’s 21 million retirees. And the three million university and technical high school students will receive 200 euros each, including the 440,000 foreign students who live here. This money will be paid on December 1, 2022.

More people from low-income households should receive housing allowance to help them pay for their accommodation. The number of viable beneficiaries for this benefit must now increase from the current 640,000 to around two million. The threshold is determined at regional level according to the cost of living in the respective areas, but until now only one-person households with an income of less than €1,000 per month could apply for this monthly allowance. around 195 €. Those already receiving state benefits – such as the long-term unemployed or asylum seekers – are not eligible.

Housing allowance recipients will receive a second heating allowance. They had already been promised a one-off initial amount of €270 by the end of this year – and the conditions for who can apply have been drawn up in detail: to be eligible, they must have received or are receiving a housing allowance for at least one month during the “heating season”, between October 2021 and March 2022. In addition, interns and students who depend on state student loans or other state benefits must receive the grant.

From now on, there will also be a second heating allowance for housing benefit recipients: €415 for a one-person household (or €540 for two people, and an additional €100 for each additional person), which will be paid between September and the end of December 2022.

Beyond that, a heating allowance will be definitively integrated into the housing allowance.

Parents in Germany already receive a tax-free monthly child allowance for each child. Again, it’s staggered: For the first and second child, it’s €219 per month, for the third child €225, and for each additional child €250. Once the child reaches the age of 18, this benefit can still be claimed until the age of 24, if the child is still in school, vocational training or studying. From now on, this family allowance will be increased by €18 per month for the first and second child from 1 January 2023.

The federal government has declared itself in favor of a subsidized national ticket for local public transport. This follows the success of the €9 monthly pass which was sold 50 million times in three months this summer. The new ticket, however, will not be available for €9, but rather between €49 and €69 per month. The government is prepared to pay 1.5 billion euros for this, but only if the federal states contribute the same amount.

The government has also announced the amount of the basic allowance for the long-term unemployed in the future. From 1 January 2023, the “Revenu du Citoyen” (formerly Hartz IV) will increase by €50, bringing the normal rate for singles from €449 to around €500. The standard rates for multi-person households and children will be adjusted accordingly.

In Germany, those who earn more have to pay a larger share of their salary in income tax. But the system rises in steps, rather than in a steady curve. So if wages and salaries are increased, for example to compensate for inflation, an individual may suddenly move to a higher tax bracket, which may absorb the entire wage increase and possibly even more than that. . This tax increase is called “cold progression” and Finance Minister Christian Lindner’s Free Democrats have vowed to fight it. Now the progression is changed to avoid these sudden tax increases. About 48 million taxpayers will benefit.

Tax-exempt subsidies from employers:

If employers provide financial support to their employees to offset their high energy prices, these payments must remain tax-free up to €3,000.

No carbon tax increase:

Germany had imposed a new tax on fossil fuels in order to reduce CO2 emissions and combat climate change. This will no longer be raised as planned from January 2023.

  • A cap on electricity and natural gas prices

Private households, as well as small and medium enterprises, must receive a basic quantity of electricity at a reduced price. Anything above this basic consumption will have to be purchased at current market prices.

The idea here is to provide financial assistance while maintaining the incentive to save electricity. How much energy will this “basic quantity” represent? How low will the discounted price be? It’s still not clear.

Germans want support for low- and middle-income households

How will all of this be funded?

Finance Minister Christian Lindner is keen to point out that while the package of measures includes 65 billion euros, only half of this sum will come from the state coffers.

Billions are expected to come from taxing “windfall profits” made by energy companies in the current crisis. Electricity producers who use renewable energies or nuclear have not seen the same production cost increase as electricity from natural gas. But they all received higher rates, which saw their incomes increase.

Price reform is also under discussion at European level. Germany is part of an EU-wide electricity market and will find it difficult to make unilateral decisions. Critics point out that a national solution would hardly be possible because other EU countries could buy the subsidized electricity produced in Germany.

Either way, Lindner is adamant that from 2023 he will reapply the so-called debt brake, a fiscal rule enshrined in the German constitution designed to limit structural budget deficits at the federal level. .

Criticism of this third relief package has come from the political opposition and a wide range of economists, who believe it benefits the wrong people; it’s not enough; will have a negative impact on climate protection measures or will be impossible to implement.

This article was originally written in German.

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