Clemens Fuest, chief of the Munich Ifo Institute, has expressed opposition to the coalition’s plan for a blanket reduction of high fuel prices. According to Fuest’s comments to “Die Welt”, he argues that lowering the Value Added Tax (VAT) or the energy tax is not the correct course of action. He contends that the government cannot eliminate the overall economic burden caused by higher oil prices; rather, it can only redistribute it. He insists that the government should choose highly targeted instruments. Furthermore, he emphasizes that the crucial price signal, indicating scarcity of gasoline and diesel, must not be compromised, as across-the-board tax cuts relieve all drivers, many of whom would not benefit.
Fuest considers direct transfers through a new payout mechanism sensible if the government intends to alleviate the financial strain on low-income households. To support daily commuters, he suggests increasing the commuter allowance-for example, starting from 20 kilometers. Although this is less precise than targeted relief, he believes it is superior to cutting the fuel tax. Alternatively, he suggests reducing the vehicle registration tax, which would ensure that the price signal of high fuel costs remains intact.
In contrast, Fuest is critical of the price cap demanded by the Social Democratic Party (SPD). He asserts that such a cap is only effective if individual companies possess significant market power allowing them to inflate prices. Moreover, he highlights the risk of supply problems if the state-regulated price is set too low, as suppliers would then be more inclined to export the gasoline. Regarding windfall taxes, Fuest points out that because major oil corporations are often based abroad, collecting revenue from their profits through a domestic windfall tax is practically impossible.
