Klingbeil Promises "Targeted Relief"
Germany's fuel tax cut expires as energy cost crisis deepens amid political deadlock
Until just days ago, Friedrich Merz had aligned himself with Finance Minister Lars Klingbeil (SPD), rejecting broad-based tax cuts. Instead, he insisted that rising energy costs would not be addressed with "blanket handouts" but only through "targeted relief." Merz also dismissed expectations of swift action, reinforcing critics' claims that his primary guide was the SPD's election platform—which he seemed determined to avoid clashing with at all costs. Even his own economics minister, Katherina Reiche (CDU), who had sharply criticized SPD proposals for price controls and windfall taxes as "costly, ineffective, and constitutionally dubious," was swiftly silenced by Merz.
Yet the chancellor also faced intense pressure from within his own ranks. Sven Schulze (CDU), the minister-president of Saxony-Anhalt, demanded urgent relief for drivers, declaring that fuel prices must drop "by tomorrow morning." He argued it was unacceptable for workers to spend most of their wages just commuting—a stance likely influenced by looming state elections in the fall, with the far-right AfD breathing down his neck even more than in Mecklenburg-Western Pomerania, where Manuela Schwesig's SPD faces similar challenges. For regional governments, soaring fuel costs are fast becoming an existential threat.
Businesses, meanwhile, receive little to no relief on production costs for coal, oil, and gas, and only minimal support for transportation expenses. Private motorists fare no better. The temporary tax cut on fuel will expire just as the first wave of summer vacations begins—meaning travelers filling up their tanks will again face sky-high prices. A similar tax reduction was introduced at the start of Russia's full-scale invasion of Ukraine, lasting three months at the time. But with Klingbeil, who has long believed public funds are better kept in state coffers than in citizens' pockets, such measures were never on the table.
Budget Gaps Left Unfilled
Another key relief measure—the tax- and social-security-exempt €1,000 bonus that employers can pay workers in 2026—also misses its mark. To offset lost revenue, the coalition plans to raise tobacco taxes as early as 2026, while the resulting shortfalls in social insurance funds will go unaddressed.
The German Economic Institute (IW) has already demonstrated that the bonus fails to reach those who need relief most: "Low-income earners benefit the least." Citing the 2022 inflation compensation bonus, IW notes that only one in four workers earning less than €1,000 gross per month received it at the time. For those earning between €1,000 and €2,000, the figure was one in three, while six in ten of those earning €4,000–€6,000 per month qualified. "If the federal government wants to support low-income households, this bonus is the wrong tool," the institute concluded.
Söder Hasn't Read Max and Moritz
Klingbeil, however, dug in his heels, citing his severely underfunded budget to block direct federal payments to citizens—unlike the 2022 energy price subsidy of €300, which had been precisely targeted. Higher earners paid more tax on that subsidy, while lower earners faced minimal deductions, making it progressive. The measure cost the state nearly €20 billion, whereas the current bonus's tax and social security exemptions are estimated to forgo around €12 billion in revenue, split evenly between the treasury and social insurance funds.
The SPD and the Union still aim to agree on reforms to health insurance, pensions, and income tax. CSU leader Markus Söder, invoking Wilhelm Busch's Max and Moritz, quipped: "This was the first prank, but the second will follow soon." He should have read the story first. The mischievous duo's final stunt ended in their demise. As Busch wrote: "Thank heaven! Now their wickedness is over."
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