German industry to lose energy tax exemptions

Conflict with EU competition law claimed behind change to flat-rate application to all sectors

The German government is to drop its plan to exempt up to 27 energy-intensive industries from forthcoming new energy taxes, according to sources in the country's finance ministry. A new proposal for the taxes is expected to be made in the next few weeks and will apply equally to all industry sectors, ENDS Daily understands.

Since coming into power last September, Germany's red-green coalition has launched a high profile plan to introduce an ecological tax reform by raising energy taxes and using the proceeds to cut labour taxes (ENDS Daily 19 October 1998). However, the proposal has led to arguments between the governing partners, followed by indications that economy minister Werner Müller's proposal to exempt energy intensive industries might run foul of EU competition law.

The government now appears to be trying a new approach to raise energy prices without stimulating inter-party conflict or arguments with the EU. According to the finance ministry, all manufacturing companies will now have to pay an equal rate of tax, equivalent to 20% of that imposed on households. In the earlier plan, most companies would have paid 25% of the standard rate, with some sectors exempted completely.

However, a new element has been added to placate German energy intensive industries worried that the taxes will make them uncompetitive. Firms will be eligible for a rebate on the new energy taxes if their extra costs are more than 120% of the savings they gain from lower payroll taxes. No further details were available today on how the rebate system would operate.

It remains to be seen whether the European Commission will look more favourably on the new proposal than the old - and unclear even whether it did in fact place pressure on the German government to make the change. German officials and party representatives have stressed that the Commission had indeed said that the exemptions would conflict with EU competition law. But a spokesperson for EU competition commissioner Karel Van Miert told ENDS Daily recently that the Commission had given no comments on the substance of any proposal because none had been formally presented.

The German government says it expects the new tax proposal to raise the same amount of money as the original one. It has rejected claims by critics that revenue will now be insufficient to fund the planned payroll tax cuts and linked new support for renewable energy, threatening the ecological tax reform. The latter element was proposed as compensation to the renewables industry for its inclusion in the energy taxes, which will affect electricity as well as oil and natural gas.

Follow Up:
German finance ministry, tel: +49 228 6820.

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