Coalition adopts comprehensive relief package

• Direct payments: Pensioners should receive a one-time payment of 300 euros, which corresponds to a relief of six billion euros. Students receive a one-time fee of 200 euros.
• Relief for energy prices: In order to relieve households of electricity prices, an electricity price brake will be introduced and the increase in network charges will be curbed. Scholz announced that this would be a “dramatic relief”.
• Skimming off chance profits: The federal government wants to finance this by skimming off excess profits from companies. To this end, the coalition envisages a “revenue cap for power generation systems with a low cost basis”.
• Lower CO2 price: In order to further relieve the burden on citizens and companies, the planned increase in the CO2 price of five euros per ton in fuel emissions trading on January 1, 2023 will be postponed by one year.
• Higher child benefit: In order to support families in particular, the child benefit will be increased by 18 euros on January 1, 2023, above and beyond what is constitutionally required. For a family with two children, that means 432 euros more per year for the next two years. The child supplement for single parents will also be increased again to 250 euros per month.
• Housing benefit reform: The entitlement to housing benefit is being expanded, increasing the group of beneficiaries from 700,000 to two million. Those entitled to housing benefit receive a one-off heating subsidy of 415 euros.
• Relief for social security contributions: low-income workers will be relieved of social security contributions by EUR 1.3 billion. In the future, you will only have to pay full social security contributions from an income of 2000 euros. In addition, the so-called midi job limit, which rises from 1300 to 1600 euros in October, will be raised to 2000 euros from January 2023.
• Business Aid: The existing aid programs will be extended until the end of 2022. A new aid program will be launched for energy-intensive companies that cannot pass on the increase in their energy costs. The government also wants to support companies with investments. At the same time, the so-called peak compensation for energy-intensive companies will be extended by another year, and the short-time allowance will be extended until the end of 2022. The reduced VAT rate for restaurateurs will also be extended to seven percent.
• Successor to the nine-euro ticket: The heads of the governing parties have also agreed on a successor model for the nine-euro ticket. The federal government wants to provide 1.5 billion euros annually for this.

In addition, the program includes a number of measures that had been planned for a long time, such as the reduction of gradual tax increases or the introduction of a “citizen’s benefit” that is to take the place of “Hartz IV”.

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The measures could be financed from the current budget, explained Federal Finance Minister Christian Lindner (FDP). For both years together, the budget will be charged with 32 billion euros.

No supplementary budget is necessary for 2022, and the 2023 budget will also remain unchanged. From 2023, the federal government will again be able to do without using the exception rule of the debt brake. Since the outbreak of the corona pandemic, the federal government had de facto suspended the debt brake in order to be able to incur higher debts.

The federal government made no decision on the question of whether the service life of the three nuclear power plants, which are actually scheduled to go offline at the end of the year, will be extended.

Economists make a mixed judgement

Economists judge the relief package to be sensible in terms of approach. “It’s good that the relief is largely targeted at groups that are particularly burdened, and that they also include pensioners and students,” says Veronika Grimm.

Ifo President Clemens Fuest also advocates that no direct price reductions should be implemented, but that the burden should be relieved directly. “A positive aspect of the relief package is the recognizable effort to let price signals take effect, even if this was not sustained with gas,” he said. With the latter, Fuest alludes to the already decided reduction in VAT for gas. Nevertheless, the Ifo President does not consider the measures to be particularly accurate: “They probably didn’t want to be accused of forgetting someone.”

Grimm also agrees with regard to the planned measures on the energy markets. The economist is particularly bothered by the plan to finance an electricity price brake for consumers by skimming off random profits from energy producers. “This should mean that too little attention is paid to power consumption and the problems just drag on,” explained Grimm. One-off payments to households with lower and middle incomes are much more effective.

Grimm also criticizes the gap for gas consumers, for whom there should no longer be any specific relief beyond the reduction in VAT mentioned. “With the current procedure, it is actually foreseeable that further extensive relief for gas customers will be necessary due to the gas bills that are incurred,” says Grimm. Philippa Sigl-Glöckner, director of the “Department Future” think tank, also speaks of a “really big hole”.

Retirees and students were recently left empty-handed

The federal government had recently come under pressure to react to the ever-increasing prices and to provide further relief. It had already put together two relief packages totaling 30 billion euros earlier this year. However, pensioners and students got nothing from the energy price flat rate of 300 euros adopted in the second relief package, while high earners received the flat rate, which led to considerable criticism.

Relief from the second package, such as the so-called tank discount or the nine-euro ticket, also expired on September 1st without there being any follow-up regulations. Refueling and public transport have been significantly more expensive since the beginning of Monday. In addition, the economic situation has deteriorated further. In August, the inflation rate in Germany climbed to 7.9 percent. The Bundesbank even anticipates double-digit inflation rates over the course of the year.

In addition to food, energy in particular is becoming more and more expensive. Because Russia is curbing gas imports to Germany and has even stopped them altogether in the meantime, gas and electricity prices are exploding to an unprecedented extent. Many citizens suddenly have to pay three times as much for electricity and gas. In particular, those on lower incomes can hardly shoulder the additional burdens. Further support is therefore also a question of social cohesion, emphasized Chancellor Scholz.

The coalition leaders’ negotiations on the third relief package started late on Saturday and were described as “very intense” and “difficult” during the afternoon and evening. The coalition leaders came to the Chancellery at nine o’clock on Saturday, after which the parties initially discussed separately for three hours. The actual traffic light negotiations began around twelve o’clock – and lasted until six o’clock on Sunday morning.

For weeks, the federal government has been struggling behind the scenes for further relief, but as with the second relief package, the three coalition parties had different ideas about how the state could support the citizens.

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