Germany plans return to debt-limit rules in 2023

Germany will reinstate its so-called debt brake in 2023 after suspending it for three years to cope with the impact of the coronavirus pandemic, sources in the finance ministry said Wednesday.

German Finance Minister Christian Lindner (FDP) at an event in Berlin on June 15th.
German Finance Minister Christian Lindner (FDP) at an event in Berlin on June 15th. Photo: picture alliance/dpa | Michael Kappeler

The government will borrow 17.2 billion euros ($18.1 million) next year, adhering to the rule enshrined in the constitution that normally limits

Germany’s public deficit to 0.35 percent of overall annual economic output, despite new spending as a result of Russia’s war in Ukraine, the sources said.

The new borrowing set out in a draft budget to be presented to the cabinet on Friday is almost 10 billion euros higher than a previous figure for 2023 announced in April.

However, “despite a considerable increase in costs, the debt brake will be respected,” one of the sources said.

Although Germany is traditionally a frugal nation, the government broke its own debt rules at the start of the coronavirus pandemic and unleashed vast financial aid to steer the economy through the crisis.

READ ALSO: Debt-averse Germany to take on new borrowings to soften pandemic blow

The government has this year unveiled a multi-billion-euro support package to help companies in Europe’s biggest economy weather the fallout from the Ukraine war and sanctions against Russia.

Berlin has also spent billions to diversify its energy supply to reduce its dependence on Russia, as well as investing heavily in plans to tackle climate change and push digital technology.

But despite the additional spending, Finance Minister Christian Lindner has maintained the aim to reinstate the debt brake in 2023.

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EXPLAINED: How German residents could soon need to exchange their heating systems

A new law could spell the end of gas and oil heating systems in Germany by requiring homeowners to switch to eco-friendly energy instead. Here's what property owners and tenants need to know.

EXPLAINED: How German residents could soon need to exchange their heating systems

What’s going on?

As part of the government’s aims to slash carbon emissions, the Economics Ministry is working on a new law that will see Germany transition away from oil and gas heating systems towards more climate-friendly sources of energy.

If the bill comes into force, homeowners will be obligated to install low-emission heating systems like heat pumps and solar energy by 2045 at the latest – though many will need to do this much sooner.

Currently, almost 50 percent of the some 41 million households in Germany heat their homes with gas, followed by oil at 25 percent and district heating at 14 percent. In contrast, barely three percent of households heat with more sustainable energy sources like direct electric heating and heat pumps. 

The energy sector – including household heating – is responsible for producing just over a third of Germany’s carbon emissions each year, making it a cornerstone of the government’s climate plan. But some homeowners are concerned they’ll have to foot the bill for pricey new heating systems they may struggle to afford.

READ ALSO: Reader question: Should I modernise my heating system in Germany?

Do homeowners need to take action now?

Not necessarily. Though the bill stipulates that every newly installed heating system from January 1st 2024 must be powered by at least 65 percent renewable energy, there’s no suggestion that homeowners will need to do this straight away. 

In fact, old heating systems run on oil or gas can continue to be used and repaired from 2024 onwards, but if any new system is installed after this date, the 65-percent-renewables rule applies. 

That said, it could be worth looking into your options ahead of time and considering what environmentally friendly heating makes most sense for you. Though the deadlines for switching have been relaxed considerably, it’s helpful to know how much you could need to shell out in the future. 

What happens if my heating system stops working after 2024?

In an emergency situation where your heating breaks completely and can’t be repaired, the bill says homeowners will be permitted to get an oil or gas burner quickly installed. These are generally available at short notice and can be fitted rapidly, whereas installing devices like heat pumps can take much longer. 

A heat pump in a garden in Germany.

A heat pump in a garden in Germany. Photo: picture alliance/dpa | Daniel Reinhardt

If homeowners go down this road, they will then have three years to ecologically retrofit the heating system, for example by swapping their temporary gas heating with a heat pump. Any new system should once again be run on at least 65 percent renewable energy.

READ ALSO: Can German homeowners expect high renovation costs under new EU law?

What are my options for replacing oil and gas?

Economics Minister Robert Habeck (Greens) has primarily focussed on heat pumps in his bill, though there are plenty of other options for eco-friendly heating systems. 

Heat pumps are electricity-powered devices that draw heat from the air, ground or water, compress it to make it warmer and then transfer the heat to a new location. They are one of the most energy efficient heating devices on the market, but can also come with a hefty price tag, depending on what type you choose and how it is installed. However, they are generally a far cheaper source of energy in the long-run than gas or oil. 

The draft also mentions other potential options for heating the home in an energy efficient way, such as connecting to a heating network or direct electricity heating and, under certain conditions, heating based on solar thermal energy, biomass heating, hydrogen heating or gas heating that demonstrably uses renewable gases. Hybrid systems using a combination of heating pumps and gas could also be an option. 

READ ALSO: Reader question: How do I install a heat pump in my German property?

Does it make sense to get new oil and gas heaters installed now?

Despite the upcoming ban on new gas and oil heating installations – or, more likely, because of it – there are early signs that sales of fossil-fuel powered heating systems are booming this year. In the first quarter of 2023, sales of gas and oil burners was up 38 percent, suggesting that people are rushing to install new heating systems while they can.

While this might seem like a good strategy for postponing the purchase of a pricey new system, it may not be the best idea in the long run.

A woman turns up the thermostat on the radiator

A woman turns up the thermostat on the radiator at home. Photo: picture alliance/dpa | Hauke-Christian Dittrich

That’s because hikes in the CO2 tax is likely to drive up the price of oil and gas heating significantly, while systems driven by renewables tend to be cheaper to run.

In addition, all fossil fuel heating systems have to be exchanged by 2045 at the latest anyway, and even a new system (especially if it’s a cheap one) could break down in the meantime. 

Are there any exceptions I should know about?

Yes. For elderly people, the government has added a carve-out in recognition of the fact that installing environmentally friendly heating systems may be burdensome for the older generation and is unlikely to pay off. 

In concrete terms, that means that people over the age of 80 who live in their own home can replace old gas and oil heating systems with systems of the same type. However, if they sell the house or pass it on in their will, the exception ceases to apply and the new owners have two years to replace the old fossil fuel heating.

Gas and oil heating installation will also be permitted under some circumstances, for example if they can run on renewable raw materials or green gases like biomethane, or if they can be run on pure hydrogen in the future. 

In addition, there will be special hardship provisions for low-income households.

Can I get financial support from the government?

Yes. Regardless of your income, you should be able to get a fairly large subsidy from the government for exchanging the heating system in your home – though the amount slightly depends on the timing and other factors.

Currently, the paper states that people who replace their inefficient heating system with a more eco-friendly one can get a 10-40 percent subsidy on the cost. In future, all homeowners who have to replace their heating will get a flat subsidy of 30 percent. Originally, the subsidies were intended to be on a graded scale and linked to income, but disagreement in the traffic light coalition saw this idea scrapped.

A man sits at a table and counts money.

A man sits at a table and counts money. The government is offering significant subsidies for home owners who need to exchange their heating systems. Photo: picture alliance/dpa | Hauke-Christian Dittrich

Instead, so-called “climate bonuses” with additional subsides of 10 or 20 percent will be available for some groups. For example, people receiving social welfare payments will get an extra 20 percent subsidy, meaning they only have to shoulder 50 percent of the costs. 

Meanwhile, homeowners who are obliged to replace their heating systems will receive a climate bonus of 10 percent if they replace their particularly old and inefficient heating system before the deadline or install a heating system with a higher proportion of renewables.

It’s worth mentioning that people who live in a self-owned flat will only take a share of the total cost of the refit, which will be split between members of the homeowners’ association. 

READ ALSO: Ask an expert: Is now a good time to buy property in Germany?

Should tenants worry about increased heating costs? 

In the case of landlords and tenants, it’s theoretically possible for the property owner to buy a cheaper and less efficient heating system and pass these hefty operating costs onto their tenants.

However, to avoid this situation, the government has written special new tenants’ protections into the draft law.

For example, landlords will only be allowed to pass on the amount that would be required to generate the same amount of heat with a sufficiently efficient heat pump when billing for operating costs for gas heating systems based on biomethane, which may be cheaper to purchase but more expensive to run.

Regulations are also planned to protect tenants in buildings with poorer energy efficiency from excessive operating costs when a less efficient heat pump is installed.