The Federal Ministry for Economic Affairs (BMWE) is reviewing various consequences resulting from the Iran crisis through the Easter period. A paper, titled “Alternative Scenarios for Possible Macroeconomic Effects on the Euro Area and Germany” provided to the dts news agency, weighs potential measures with both arguments for and against. The document was most recently revised in the immediate circle of Minister Katherina Reiche (CDU) on Saturday before Easter.
Regarding a potential reduction of electricity tax for all consumers to the European minimum rate-a measure publicly considered by Reiche herself-the BMWE sees this as an “untargeted relief effect” and a fiscal burden amounting to approximately 5.5 billion euros annually, a figure that is “projected to rise”. On the other hand, the action is deemed “supportive from an industrial policy perspective” due to potential structural improvements in the economic viability of future technologies.
As counter-arguments to a temporary increase in the commuter subsidy, which the minister also suggested, Reiche’s officials cite a “delayed effect and visibility” and the “fiscal burden”. The positive argument noted is that there would be a “targeted relief effect for commuters, but not according to mode of transport or income” and that “price signals would remain intact”.
The preservation of “price signals”-the concept that prices transmit information and exert a steering effect-is particularly important to the ministry’s leadership, and this argument appears repeatedly throughout the list.
Consequently, a potential reduction of VAT on fuel to 7 percent is consistently viewed negatively by the ministry. This measure is considered to have an “untargeted relief effect” undermining the aforementioned price signals, and also imposing a “high fiscal burden”.
Conversely, the so-called “windfall tax”-suggested by figures such as Federal Finance Minister Lars Klingbeil (SPD)-could garner positive points for Reiche’s ministry. Although a “legally secure implementation is difficult” and there is “no direct relief effect, aside from revenue redistribution” and it would send a “negative signal from the state to all types of investors and private enterprise interests” the positive arguments mention that “price signals remain in place” and there would be “fiscal relief, provided windfall profits occur”.
The ministry’s leadership uniformly rejects “price caps” whether at the gas pump or in the European Emissions Trading System. Such a price cap would have an “untargeted relief effect” “massively undermine incentives for savings” and impose a “high fiscal burden if the price cap is set so low that oil companies incur losses”.
