Third relief package on the way

The German government has agreed on a third relief package with a total volume of around 65 billion euros.

After weeks of debate about further relief for citizens hit by general inflation and enormous energy prices, the German government has agreed on its third and by far largest relief package to date. The package is set to have a volume of around 65 billion euros, although a large proportion of this is accounted for by measures on the electricity market that are not financed from the public budget. In addition to tax measures, the package also includes one-off payments and higher social benefits:

• Child support: Child benefit will be increased beyond the constitutionally required level on January 1, 2023. Initially, only an increase of 18 euros per month from 219 euros to 237 euros was planned for the first and second child. Following criticism of the package, the coalition has followed up and announced an increase for the third child as well. Here, the amount will be increased by 12 euros from 225 euros to 237 euros.

• Child supplement: If there is not enough income for the whole family, parents can apply for a child supplement in addition to child benefit. The maximum amount of the child supplement was increased to 229 euros per month per child on July 1, 2022 and is now to be increased again from January 1 2023 to 250 euros per month. This will apply until the introduction of the basic child insurance.

  

• Cold progression: As in previous years, the basic income tax rates will be adjusted on January 1, 2023 in order to prevent a tax increase due to inflation ("cold progression"). The specific values for the adjustment will be determined when the progression and subsistence level report is available in the fall.

• Energy Price Flat Rate: Pensioners now also receive an energy price allowance of 300 euros. The energy price lump sum will be paid out by the German Pension Insurance Fund on December 1, 2022 and is subject to income tax. The federal government also wants to make a corresponding one-off payment for pensioners and other federal pension recipients. The aim is to ensure that no double payment is made. It is not yet clear from the ruling coalition's decision whether this statement only refers to the payment by the pension insurance fund and the federal government or, more likely, also includes the energy price lump sum for employees, to which pensioners with additional earned income are already entitled.

• Students: Following the heating allowance for BäföG recipients, all students and vocational students are now to receive an additional one-off payment of 200 euros. The federal government wants to discuss with the federal states how the payment can be made quickly and unbureaucratically. In contrast to the energy price lump sum, this one-off payment is not yet subject to tax, which is probably also the reason why the payment is lower than the energy price lump sum for employees and pensioners.

• Home Office Flat Rate: The home office allowance, which was previously limited until the end of 2022, will be discontinued. This means that an income-related expense deduction of 5 euros per working day in the home office is possible, but previously a maximum of 600 euros per year. The coalition's consensus paper also talks about improving the lump sum, which probably amounts to an increase in the maximum annual amount.

  

• Gastronomy: The reduction in VAT on food in restaurants to % will be extended in order to relieve the burden on the catering industry and prevent further inflation. The former and current Federal Ministers of Finance discussed such an extension months ago.

• Sales tax on gas: To compensate for the new gas procurement levy, VAT on all gas consumption will be reduced at the same time as it is introduced on October 1, 2022. Until the end of March 2024, the reduced tax rate of % 7 will apply to gas consumption instead of the normal tax rate of % 19. The government announced this measure a few weeks ago, but it is still unclear whether and to what extent consumers of district heating generated from gas will also be able to benefit from the VAT reduction.

• Midi jobs: The law already stipulates that the maximum limit for employment in the transitional sector (midi job) will be raised from EUR 1,300 to EUR 1,600 as of October 1, 2022. This maximum limit is to be raised further to 2,000 euros from January 1, 2023. The lower social security contributions will save employees in this salary range around 1.3 billion euros a year.

• Short-time allowance: According to the coalition's decision, the special regulations for short-time work compensation are to be extended beyond September 30, 2022. As some of the corona-related special regulations have already expired on June 30, 2022, the extension will probably continue to apply only to the reduced eligibility requirements for short-time work compensation.

• Tariff policy: As part of the "Concerted Action", the federal government is discussing with the social partners how to deal with the real loss of income for employees. The federal government is prepared to exempt an amount of up to EUR 3,000 from tax and social security contributions for additional payments made by companies to their employees. However, this is only an announcement so far - there are no concrete regulations yet.

• Company aid: A program will be set up for energy-intensive companies that are unable to pass on the increase in their energy costs. In addition, companies are to be supported in investing in efficiency and substitution measures. In addition, the existing aid programs for companies will be extended until 31 December 2022. These include, in particular, the KfW special program Ukraine, Belarus, Russia (UBR) with low-interest loans and the extensions of the federal and state guarantee programs introduced during the corona pandemic to ensure short-term liquidity as well as the energy cost containment program to relieve the burden on particularly energy-intensive and trade-intensive companies.

  In order to reach more companies and facilitate access, the exemption from liability will be improved in the KfW special program. The energy cost containment program is to provide support for additional companies that are not on the KUEBLL list. The German government also wants to examine the extent to which sustainable companies that have to temporarily cease production due to the gas shortage and unsustainable energy prices can be stabilized.

  In order to support municipal and social housing companies with rising energy costs, the temporary funding for operating resources in the KfW investment loan for municipal and social enterprises will be extended until December 31, 2023. Remaining funds in the federal government's special fund for cultural events will be used to provide targeted support for cultural institutions.

• Minimum taxation: The German government wants to start implementing the internationally agreed global minimum taxation at national level now. In the long term, it should lead to billions in additional revenue and thus partially finance the tax relief.

• CO2 levy: In order to prevent energy costs from rising any further, the increase in the CO2 levy due at the beginning of 2023 is to be postponed by one year. The CO2 levy for fossil fuels such as petrol, diesel, heating oil and natural gas would normally increase by five euros per tonne on January 1, 2023.

  

• electricity market: An electricity price brake is intended to relieve the burden on citizens and small and medium-sized enterprises with utility tariffs. They should be able to use a basic supply at cheaper prices. The federal government has yet to work out the details. Energy companies that produce electricity from coal, nuclear or renewable sources at consistently low production costs are currently making very high profits. In order to finance the electricity price brake, these profits should therefore be partially skimmed off. There is already a consensus on this at EU level, which should oblige all member states to adopt a corresponding regulation.

• Nationwide ticket: The 9 euro ticket for the months of June to September was a great success. A nationwide local transport ticket is therefore to be introduced. The federal and state transport ministers are to develop a joint concept for a nationwide, digitally bookable subscription ticket in the near future. As significantly less funding is available for the ticket than for the 9 euro ticket, the coalition is aiming for a price corridor of 49 to 69 euros per month.

• Housing benefit: The biggest housing benefit reform in German history will come into effect on January 1, 2023. Up to two million people will be entitled to housing benefit, many of them for the first time. In addition, housing benefit is to permanently include a climate and heating cost component in future in order to cushion the impact of rising energy prices. In addition, as a short-term measure prior to the reform, a one-off heating cost subsidy II is to be paid to housing benefit recipients for the heating period from September 2022 to December 2022. It amounts to a one-off payment of EUR 415 for one person (EUR 540 for two people, an additional EUR 100 for each additional person).

In their consensus paper on the tax relief package, the coalition partners have listed a few more planned regulations. However, these are measures that have already been in place for some time because they were agreed in the coalition agreement or are absolutely necessary due to the case law of the Federal Fiscal Court.

This concerns, for example, the introduction of a citizen's allowance of around 500 euros per month instead of unemployment benefit II and social benefit from next year or the bringing forward of the full deductibility of pension insurance contributions to 2023. Strictly speaking, these are not further new relief measures, but these regulations will come into force at around the same time as the new measures that have now been adopted.