Posted on September 4, 2022, 3:38 PMUpdated September 4, 2022, 7:06 PM
Will the long-term closure of the Nord Stream 1 gas pipeline announced on Friday night in Moscow force Olaf Scholz’s coalition to unite? The summer has been punctuated by conflicting announcements that have undermined German confidence in their government’s ability to see them through a winter whose energy bills promise to be dire. After twenty-two hours of negotiations, the three ruling parties were finally able to agree, early Sunday morning, on a new aid package of 65 billion euros.
“We take the concerns of our fellow citizens very seriously and we will face these difficult times together”, hammered the German chancellor. This new plan of measures, which will run until the end of next year, is twice as important as the first two. “In total it represents 95 billion euros, it is a lot, it is necessary”, concluded Olaf Scholz.
Aid for low income households
The main purpose of this plan described in a 13-page document is to support the most modest households where the rise in energy prices is an existential question while inflation has reached a record high. The minimum integration income received by almost 3.6 million people will be raised by 51 euros to reach 500 euros in January, while social security contributions will be reduced by a total of 1.3 billion euros for employees. who receive less than 2,000 euros per month.
Retirees who are excluded from the tax rebate of 300 euros will also receive an equivalent bonus, while students will receive 200 euros. The coalition also plans to release 1.5 billion euros to extend the principle of the ticket of 9 euros per month in public transport, which ends at the end of August. The aim is to replace it with an “attractive monthly package of 49 to 69 euros”, but the ball is now in the court of the regions.
Olaf Scholz also promised “the most important reform of housing assistance in history”. The aim is to increase from 640,000 to 2 million the number of people eligible for this allowance, which includes help for heating costs. More broadly, a cap on the price of basic electricity consumption should be put in place to protect the most modest households that consume the least. The CO tax increase2 which risks increasing the bill will also be postponed for a year in 2024.
A contribution to windfall gains
While the wage negotiations have already provoked several strikes and strained social relations that the surpluses expect to worsen, the government will also subsidize the revaluations by exempting them from taxes and duties up to the amount of 3,000 euros. Finance Minister Christian Lindner estimates the additional budget contribution of this plan to 32 billion euros in 2022 and 2023, stressing that it will be invested in line with budget planning. In other words, without increasing the debts.
A large part of the financing, “25 billion euros according to a low estimate”, should come from a compulsory contribution to the “windfalls” specified by the minister. This is the excess profit that energy companies receive from gas prices while they produce electricity from coal, nuclear or cheaper renewable energies. The disparity will increase if prices continue to rise, which will give more room for budget manipulation, the minister pointed out. Contrary to the principle of taxation, he stressed that it is not a fiscal measure.
The coalition is counting on the EU to put this contribution in place, alongside a reform of the electricity market. But Olaf Scholz said Germany will be on its own if the negotiations drag on. However, he did not mention an extension of nuclear power plants to increase the amount of energy available. This taboo seemed difficult to overcome and required more than one night of negotiation.