Fuel tax cut in Germany: 16.7-cent discount at pumps

Germany slashes fuel taxes to ease driver costs—but prices still surge

Critics Slam Fuel Tax Cut Revival as Costly, Inefficient, and Climate-Irresponsible

Critics are right to tear into the revival of the fuel discount—a relic of the traffic-light coalition's policies—as exorbitantly expensive, economically inefficient, and climate-policy negligence. Yet despite the backlash, the center-right and center-left government's gift to Germany's combustion-engine drivers—and, even more so, to the oil industry—is set to take effect on May 1.

On Friday afternoon, the Bundestag approved the temporary tax cuts. The measure passed with support from the CDU/CSU, SPD, and the far-right AfD. Shortly afterward, the Bundesrat gave its majority approval in a special session.

Starting May 1, energy taxes on diesel and gasoline will drop by 14.04 cents per liter in response to soaring prices triggered by the Iran conflict. This reduction aligns with the minimum tax rate for diesel. Since the lower energy tax also reduces VAT, the total tax cut amounts to 16.7 cents per liter. The measure will remain in place until the end of June.

For the average driver, the discount over two months will likely amount to no more than a low two-digit euro sum. But the state will forgo roughly €1.6 billion in revenue due to the lower taxes.

Klingbeil's Self-Praise

Finance Minister Lars Klingbeil (SPD) nonetheless praised the move as an "important signal" to the public. "We are not leaving people to fend for themselves in this crisis," the SPD co-leader declared in Berlin on Friday. He also urged oil companies to pass on the full 17-cent-per-liter tax cut to consumers—though his appeal carries no binding force. In reality, the corporations have free rein.

And they wasted no time in doing what corporations do in such situations: Immediately after the decision, fuel prices surged more sharply than in any midday spike since the introduction of the 12 p.m. pricing rule in early April. The ADAC recorded a 14.1-cent increase for E10 gasoline and a 16.3-cent jump for diesel.

The leaders of the CDU, CSU, and SPD had agreed on the fuel discount in mid-April. "This will quickly improve the situation for drivers and businesses across the country—especially for those who rely on their cars for work," Chancellor Friedrich Merz (CDU) stated.

What Merz didn't mention: Economists like Marcel Fratzscher of the German Institute for Economic Research warn that the discount could drive up food and heating costs even further. After all, oil remains scarce, and the subsidy only intensifies the shortage.

Controversial Relief Bonus Also Approved

Equally contentious is the second so-called relief measure rushed through the Bundestag on Friday: a tax-free relief bonus of up to €1,000 for employees. Parliament amended the income tax law with votes from the center-right and center-left coalition, while the AfD and Left Party opposed it and the Greens abstained. "The Bundesrat is taking its time with approval here," one source noted. A decision is planned for May 8.

Under the coalition's proposal, employers could pay workers a tax-free "relief bonus" of up to €1,000 this year and until June 30, 2027. The draft law justifies the measure by citing the Iran conflict's severe economic disruptions, which are placing an increasing burden on many German citizens.

The bonus is voluntary for employers. Several federal states have already announced that their employees will not receive a single cent of the €1,000 bonus. Beyond the public sector, there are widespread concerns that the relief payment will fizzle out. CDU lawmaker Fritz Güntzler stated in the Bundestag that the government cannot compel companies to offer the bonus.

Business Associations Remain Skeptical

It remains unclear how many private-sector employees will actually receive the bonus. While firms could deduct the payment as a business expense, industry associations and companies have responded with caution—ranging from reluctance to outright disinterest. Amid weak economic conditions, many businesses simply cannot afford such a payout.

The German Trade Union Confederation (DGB) believes the inflation bonus could usefully complement collective bargaining—but only if it is paid on top of regular wages. Unions have simultaneously warned against using one-off payments like this bonus as a substitute for genuine pay rises.

According to the draft law, the tax exemption will cost the state up to around €2.8 billion. To offset this, the government plans to raise tobacco taxes, though details have yet to be finalized. The bonus draws on models used during the coronavirus pandemic and the energy price crisis triggered by Russia's war of aggression against Ukraine.

Meanwhile, dissent is growing even within the conservative CDU/CSU alliance. Stefan Nacke, chair of the union faction's employee group, told our website in an interview that the government's relief packages were now overshadowing everything else. "My impression is that this debate is distracting from the real issues—social reforms," he said. He had expected more from the last coalition committee meeting. "Then we wouldn't be having these hysterical arguments over short-term measures now," Nacke added.