Almost overnight it became clear how dependent Germany is on Russian energy, especially natural gas. The tacit basic assumption of the planned energy transition that cheap Russian gas is ultimately available as an unlimited fallback option no longer applies.
However, if you want to do without nuclear power and electricity from coal at the same time and then have to do without gas, you will have serious problems if the sun is not shining and the wind is not blowing. Therefore, the security of the energy supply of the fourth largest economy in the world is suddenly at stake.
In the face of anticipated shortages as a result of Western economic sanctions in response to Russian aggression, fossil fuel prices on world markets soared, with full feed-through to end-consumer prices.
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While heating oil sometimes cost less than 40 cents per liter in autumn 2020, prices skyrocketed to over two euros at the top. Gasoline and diesel prices at the filling stations reached a record level of more than 2.20 euros – although crude oil prices remained below the historic highs of 2008. Consumers also have to pay significantly more for gas and electricity than they did a year ago. On average, the prices for energy products rose by 22.5 percent year-on-year in February, while the entire basket of goods on which the consumer price index is based rose by just 5.1 percent.
Flexible prices are known to be at the heart of any market economy. They reflect shortages and thus ensure a balance between supply and demand. If the price level rises faster than disposable income, household wealth falls.
Contrary to what some leading politicians seem to believe at the moment, the state can at best protect its citizens from these real income losses to a limited extent. After all, he can’t get rid of the cause of them.
With tax cuts, fuel vouchers or subsidies for heating costs, household energy consumption would become more affordable again. However, the associated costs tear holes in the national budget and, in the long term, in the pockets of the citizens. So it’s all about distribution issues.
Fuel discount is not accurate
At the same time, high petrol prices are making the federal government nervous in car-making Germany, and with good reason. First, Federal Finance Minister Christian Lindner (FDP) wanted to score points with voters with a half-baked tank discount. This quick shot was not only not very accurate, but if it were implemented it would also have run counter to the spirit of the coalition agreement, which is characterized by climate protection, social justice and solid state finances.
Huberts Heil (SPD) followed with the “mobility money”, which was to be paid to all employees in addition to the regular monthly salary. Employers should get the money reimbursed by reprogramming their payroll accounting software and paying correspondingly less payroll tax to the tax authorities.
At first glance, this proposal seemed more “social” than the tank discount. In fact, however, an employee’s wages do not say much about their total household net income. A part-time spouse of a high-earning freelancer might have received mobility allowance, while the self-employed, pensioners, unemployed and students got nothing.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at research.handelsblatt.com.
For the Union, parliamentary group leader Friedrich Merz called for both the energy tax to be reduced and the sales tax on diesel and petrol to be reduced from 19 to seven percent. “That would be unbureaucratic, quick and good help for everyone,” he told the “Tagesspiegel” – and of course forgot all tradespeople for whom sales tax is irrelevant because it is only a transitory item.
On Thursday, the government decided on a kettle of fish, which appears to have the primary goal of satisfying all three coalition partners. Heil’s “mobility money” was converted into a one-time “energy price flat rate” of 300 euros, and Lindner’s “tank discount” became a temporary reduction in fuel tax. And so that the Greens don’t go away empty-handed, they received a new public transport ticket for their clientele that was heavily subsidized from the federal budget.
In addition, transfer recipients and parents, unless they are among the higher earners, receive additional one-time support. Ultimately, there should be at least a small benefit in this package for almost every citizen.
Basic law guarantees citizens subsistence level
In principle, it is correct that politicians are targeting the distributional effects of the sharp rise in energy prices. Because the sharp rise in the price of energy can mean that the real income of low earners and many recipients of transfers falls close to or even below the subsistence level.
And here you have to be careful. After all, the Basic Law guarantees all citizens the subsistence level. In addition, the Treasury may not tax income up to this amount. A rapidly rising price level requires readjustments here. There is actually no need for further measures, since, realistically speaking, the state cannot shield citizens from energy price increases in the long term. Because even higher government debts have to be paid by someone at some point.
There are also sectors that are particularly hard hit by the price jumps, such as the very energy-intensive chemical industry and the transport industry. If, for example, there were a wave of insolvencies in the forwarding industry, this would have serious consequences for the supply of supermarkets and factories.
A viable way of countering these upheavals would be temporary relief for the economy through generous opportunities for subsequent tax loss carrybacks – for all companies that are now slipping into the red. Such returns cost the state little on balance. Because if the companies survive, the current tax refunds will be offset by higher tax payments in the future. Nevertheless, such intertemporal offsetting options can ensure that liquidity remains in the company and thus its solvency is secured.
The big hope is that the current rise in energy prices is temporary. In this case, state aid to needy households and fundamentally solid companies makes sense. However, if prices remain at their current level for the foreseeable future, nobody can be protected from them in the long term. Germany would inevitably become poorer.
More: “European solidarity in danger” – Concern about Germany going it alone in energy