Germany imposes a winter gas tax despite concerns about its effects

A winter gas surcharge for German homes and companies was set on Monday at 2.4 euro cents per kilowatt hour and will go into effect in October.

Due in large part to Russia's invasion of Ukraine, gas prices have increased, raising concerns about the security of the energy supply as well as, in certain cases, delivery gaps.

Due to businesses' inability to pass on their rising expenses, consumers have thus far mostly been sheltered from the rises. However, this is set to change.

Trading Hub Europe, the organisation in charge of directing and coordinating the German gas market, made the decision about the levy's dollar amount. However, the government has previously stated that the rate should probably fall between 1.5 cents and 5 cents.

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The levy's stated purpose is to help gas providers who are now paying higher prices to acquire gas, often from new sources other than Russia, cover about 90% of the additional costs they incur.

Gas is the most common kind of heating in Germany, used in just under half of all homes.

Due to the conflict in Ukraine, Germany's dependence on Russian gas for both industrial and domestic use has gained notoriety this year.

The government wants to exempt sales tax.

Christian Lindner, the finance minister, has already stated that he hopes to lessen the shock by asking for the ability to waive sales tax on the new gas fee in Brussels. The EU would need to provide the go-ahead for this.

That will change things for certain folks, said Lindner.

Kerstin Andreae, the executive director of the German Association of Energy and Water Industries, contended that this was insufficient. She advised trying to obtain the 7% reduced sales tax rate for all gas purchases to public broadcaster ARD, claiming that the relief for customers was "important."

According to Robert Habeck, economy minister, the annual cost of the fee will amount to "several hundred euros per household."
The hike should result in an extra €480 per year, excluding sales tax, for a household of four.

Fairness and inflation impact are in doubt

On Monday, the business-focused publication Handelsblatt published a study from a research centre with connections to the German labour movement. The Institute for Macroeconomics and Cyclical Analysis claims that the gas tax may ultimately cause inflation rates to increase by up to 2%, approaching 10%.

Jörg Krämer, chief economist at Commerzbank, said that this would likely lead to higher inflation.

"This could cause the inflation rate to exceed 9% in October and November when combined with the expiration of the 9-euro [public transportation] ticket and the discount at gas stations. It significantly lowers customers' purchasing power, "Krämer provided information to Reuters.

With the most current numbers showing a tiny decline to 7.5% year-over-year in July, Germany, like many western economies, is experiencing its first period of strong inflation in decades.

In a newspaper interview on Monday, Dietmar Bartsch, the head of Germany's socialist Left Party, blasted against the proposal. Bartsch suggested that the government should pay for any additional expenses out of the "rapidly expanding sales tax receipts," calling the levy a "impoverishment programme for many individuals." He also demanded a proposal that would, in his opinion, more fairly cover the rising expenses.

Bartsch told the RND network of publications, "It is irresponsible of the government that no attempt is made to check what financial circumstances the consumers are in, instead of accepting this blanket fee for everyone."

(With inputs from agencies)