German energy tax plan passes key hurdle

Bundestag passes amended government proposal, upper house said likely to follow suit

The German government's plan for new energy taxes took an important step forward this week after the bill was passed by the Bundestag, the parliamentary lower house. The bill now includes some new features and some modifications from the original package devised by the governing coalition parties last year (ENDS Daily 19 October 1998).

If passed by the parliamentary upper house, the Bundesrat, the bill will be effective from 1 April this year. It will introduce new taxes on electricity, gas, fuel oil and petrol for all consumers, and use the revenue to lower social security contributions paid by employers and employees. This year, the government hopes to raise euros 4.3bn (DM8.4bn) from the taxes, not quite enough to finance a 0.8% cut in social security contributions, forecast to cost euros 4.6bn. The difference will paid for out of general revenues.

The new proposal includes an initiative to support the use of combined heat and power, or cogeneration, plants by exempting them from all taxes on oil and gas if they have an energy efficiency rate of over 70%. Electricity from renewable sources will be taxed only if it is sold on the grid. The expected euros 102m annual tax income from renewable electricity will be used to fund renewable energy development programmes.

Electricity used for trains and trams will also not be taxed under the new proposal, and there will be a reduced tax rate on natural gas for gas-powered vehicles until 2009. Also, people living in apartment blocks with existing heat storage systems powered by use of electricity at night will be exempted from the electricity tax as a social justice measure.

Wednesday's agreement also ends the hopes of energy intensive German industries to win exemptions from the taxes (ENDS Daily 5 February). Instead, all manufacturing industries will pay only 20% of standard tax rates. In a new twist, farmers will benefit from the same reduction. In addition to the reduced rate, companies that spend over euros 511 per year on energy and that end up paying more in the new energy taxes than they save through cuts in social security contributions will be eligible to claim back 80% of the difference.

The German trade and industry association DIHT has called on the Bundesrat to stop "this pathetic law". According to political observers, industry groups are worried about the government's promise of an additional two rounds of tax increases before the next general election in 2002. "These tax increases will not hit them very hard, but they are worried that the next round will be stronger," an informed source told ENDS Daily. The Bundesrat is due to vote on the bill on 19 March. Commentators say it is highly unlikely that the bill will be rejected.

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

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