Michael Hüther, the director of the employer-oriented Institute of German Economy (IW), advised against implementing a fuel price cap or increasing the commuter allowance as ways to ease the burden on motorists. Speaking to the “Rheinische Post” on Wednesday, Hüther stated that “price caps would reduce the incentives for increasing efficiency in the use of fossil resources”. Regarding the commuter allowance in income tax, he argued it is “by no means an appropriate, non-targeted solution, as its benefit depends on the marginal tax rate by reducing the taxable income, thus making it progressive”.
These comments follow previous proposals from Economics Minister Katherina Reiche (CDU) for a higher commuter allowance and SPD leader Lars Klingbeil for a price cap. Instead, the IW director put forward alternative measures. He suggested that “lower-income households could be compensated through flat-rate amounts subject to income tax, allowing for automatic scaling according to ability to pay”. Furthermore, for those receiving citizen’s minimum income benefits who are employed, he proposed increasing the distance allowance.
Hüther also pointed out that an increase in the cost of imported resources will inevitably lead to a loss of prosperity. He added that dampening the domestic prices for these goods would only be justifiable in the extreme case where the price peak was expected only for a very short time, because otherwise, it would not be economically efficient to adjust. However, he stressed that such an assumption cannot be made, given the destroyed facilities in the Middle East and the disrupted logistics systems.
