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ENERGY

Who benefits the most from Germany’s inflation relief package?

Germany's traffic-light coalition is set to pass a third relief package this week to directly help people in Germany with the rising cost of living. We break down how much you can expect to save this year as a result of the measures.

Money lies on a radiator.
The German government is set to announce its biggest relief package yet ahead of a hard winter of soaring energy costs. Photo: picture alliance/dpa | Patrick Pleul

With electricity prices in Germany having doubled and the country regularly recording over 7 percent inflation, the federal government is set to pass a third relief package on September 8th. Previous packages included the popular €9 ticket for nationwide public transport, as well as an up to €300 one-off payment for rising energy costs due to be paid out this month.

But the third set of measures are more wide-reaching—and expensive—ahead of what could be a tough winter for heat and energy in the country. Of the €100 billion in planned relief so far, €65 billion is tied up in the latest measures.

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Some will benefit more than others. Families are set to receive the most support, although most people will receive at least something. German magazine Focus Online calculates that citizens will receive anywhere from a couple hundred euros to a maximum of €2,285 in relief per year—depending on the person’s specific life situation.

READ ALSO: What’s in Germany’s support package for rising energy bills

I’m a single person resident in Germany—what relief should I expect?

Single people in Germany, particularly those taking home more than €1,600 after tax (netto) will get the least amount of support, with assistance measures mostly coming through tax relief rather than direct payments.

Assuming such a person lives in a flat of anywhere between 40 and 70 square metres, the reduced VAT on their gas bills could save them anywhere between €139 and €239 per year. If they have a home office arrangement with their employer and claim the maximum amount of tax credit for this, they can claim up to a maximum of €600 per year—to offset the electricity costs that come from working at home.

Finally, depending on how much a particular single person living in Germany earns, the new relief package will allow people to deduct the mandatory contribution amounts to their public pensions from their taxes. Since such contributions are determined by income, this is one of the few measures in the relief package that will save higher earners more, with anywhere from €43 to €284 in annual savings for a single person.

A single person in a lower income bracket—for example those taking home about €1,200 a month after tax, can expect higher levels of support depending on their specific situation. Social insurance contributions for people holding certain part-time work, or “midi-jobs” in Germany, are typically reduced up to an income of €1,300 a month. The government now plans to increase this amount to €2,000—potentially saving a single midi-jobber over €300 a year.

READ ALSO: EXPLAINED: The rules in Germany around ‘mini’ and ‘midi-jobs’

Other benefits may also be open to a single person in Germany in a lower income bracket. For example, if they receive a housing allowance, they may be entitled to a one-off payment of around €400 for heating costs this winter.

If they are a student, they’ll be entitled to another one-off payment of €200 to address cost of living increases.

I’m married, living in Germany, and don’t have kids—what relief should I expect?

In addition to any one-off payments a married or partnered couple might expect, such as the heating cost one-off if they receive housing benefits or the one-off payment in the event that one or both of them are students, couples living in Germany can also expect their relief to come mainly through tax relief and credits—with higher overall savings in some cases than a single person might receive.

Assuming they live together in a flat of anywhere between 85 and 103 square metres, a couple living in Germany stands to save anywhere between about €300 and €475 per year on gas costs, thanks to the reduction in VAT on gas. The reductions on their mandatory pension contributions could also be reduced anywhere from about €200 a year to over €700 for the highest earners.

As with singles, couples living in Germany with a Home Office arrangement with their employer can also claim the associated tax credits on top of any other relief they might receive.

I’m married with children and living in Germany—what relief should I expect?

Families living in Germany will, in general, receive the most benefit from the new relief measures.

On top of any one-off payments, reduced pension contributions, or Home Office tax credits they might be able to claim, the savings from the cut in VAT on gas are the highest in absolute terms. Assuming the family lives in a home of between 115 and 180 square metres, the estimated annual savings could be anywhere from between €400 to €650.

The relief measures most specifically targeted to families however, involve the planned increases to child benefits (Kindergeld). Parents will be able to receive €237 per month for their first three children—an increase of €18 per month per child. That amounts to an extra €216 per year over the previous amount for families with one child, and €432 for families with two children.

READ ALSO: Germany to raise child benefits for families with up to three children

What about people who are unemployed and pensioners?

Because people who are unemployed or pensioners are obviously not in work or school, they will not benefit from lower pension contributions, a one-off payment for students, or Home Office credits. The traffic-light coalition is thus increasing the amount of unemployment insurance or Bürgergeld available to them from €449 to €500 per month. That amounts to an increase of about €600 a year.

Meanwhile, pensioners are set to receive a €300 one-off payment on December 1st. In order to keep the payments quick and unbureaucratic, the federal government is planning to pay it out directly through pension insurance.

Member comments

  1. What a joke of a package. Now if only they didn’t get us into this mess in the first place and then try to address it with far left spend programs

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ENERGY

How electricity prices are rising across Germany

As the year draws to an end, price comparison portals have observed huge spikes in electricity costs across Germany - though the scale of the price hikes vary across different regions.

How electricity prices are rising across Germany

According to analysis carried out by comparison portal Check24, there were at least 580 cases of price increases in the basic electricity supply at the beginning of the year, with around 7.3 million households affected.

Electricity costs increased by an average of 60 percent, the analysis found, though in some cases were much higher. In the case of the Cologne-based supplier Rheinenergie, a kilowatt hour of electricity has gone up to 55 cents – 130 percent higher than the previous price. 

Comparison portal Verifox, which conducted its own analysis, found that prices were rising by an average of 54 percent across the board. 

“The new year is beginning with a massive wave of price increases for electricity,” said Verifox energy expert Thorsten Storck.

Analysts also noted strong regional differences in the scale of the price increases, with Munich and Cologne topping the list for the most expensive electricity. 

In Munich, a kilowatt hour of energy will cost 61.9 cents from January, compared to 55 cents in Cologne.

Meanwhile, MVV Energie in Mannheim, Baden-Württemberg, will charge almost 45 cents per kWh for its basic supply from January onwards – instead of the previous 27 cents. The East German energy supplier EnviaM, based in Chemnitz, will charge 48.1 cents in the future – 20.1 cents more than before.

In Potsdam in Brandenburg, the region supplier is raising its electricity prices by around 21 percent to 46.5 cents per kilowatt hour.

READ ALSO: ‘It’s going to be a bleak winter’: How people in Germany are coping with the energy crisis

Why are the prices so high? 

In a statement explaining the imminent jump in prices, Rheinenergie pointed to the huge increase in their procurement costs and other overheads.

“Compared to the previous year, prices on the electricity exchanges have risen by more than 300 percent,” they explained. “At their peak they had increased more than tenfold. In addition, the grid fees are also rising.” 

The extreme spike on the markets is yet another consequence of Russia’s invasion of Ukraine, which has sent the price of natural gas soaring.

An electricity pylon near a motorway in Lower Saxony.

An electricity pylon near a motorway in Lower Saxony. Photo: picture alliance/dpa | Moritz Frankenberg

Though gas isn’t the only component involved in producing electricity – much cheaper renewables also account for a decent portion of Germany’s supply – it does have a significant impact on prices. That’s because of something known the “merit order,” in which the most expensive gas-fired plant used to produce electricity is decisive in setting the cost.  

READ ALSO: Germany’s Scholz dims lights on Christmas tree amid energy squeeze

What can customers do?

How to handle the latest wave of price increases may in part depend on who your current supplier is.

According to Udo Sieverding, an energy expert at the North Rhine-Westphalia consumer advice centre, people using a private supplier should consider whether it would make more sense to fall back on the so-called “basic supply.” 

“Customers outside the basic supply should even consider making use of the special right of termination in case of price increases and let themselves fall into the basic supply,” he said. 

The basic supply – or Grundversorgung – is generally provided to people who don’t set up their own electricity or energy contract with another supplier. Prices are set on a regional level and used to be considered expensive, but in recent months they have generally slipped below the rates offered by private companies. 

For people already using the basic supply, the situation is a bit trickier.

“The electricity price increases at the turn of the year are in part drastic,” said Sieverding. “Unfortunately, the new customer tariffs via the intermediary portals are even higher, which means that a change of supplier won’t lead to savings in most tariff areas.”

That means it could make sense to sit tight for now and accept the higher prices, but keep an eye on any deals that could be offered in the coming months. 

READ ALSO: EXPLAINED: How to save money on your German electricity bill

Will electricity stay this expensive in the future? 

Energy prices were rising dramatically even before Russia’s war on Ukraine – in part due to pandemic supply issues – and experts don’t think they’re set to drop anytime soon. 

According to analysis by Check24, a sample household with an annual consumption of 5000 kWh paid an average of 29.4 cents per kWh in November 2020. One year later, it was 31.6 cents. Currently, the average is 42.7 cents.

Apartments in Lower Saxony

A few apartments are lit up in a tower block in Lower Saxony. Photo: picture alliance/dpa | Julian Stratenschulte

Electricity market expert Mirko Schlossarczyk, who works for consultancy firm Enervis, said 40 cents per kilowatt-hour was likely to be the new normal in 2023 and 2024, and that prices could even rise to 50 cents per kilowatt-hour after that. 

Although wholesale electricity prices could fall again significantly in the future, as a result of a prospective drop in gas prices and the increased expansion of renewable energies – the noticeably larger share of the end customer price would be accounted for by levies, surcharges, fees, and taxes, Schlossarczyk said.

“We will not see a return to 32 cents (the pre-war price) in the coming years simply because of the comparatively high wholesale electricity price level and the already announced increases in grid fees,” he added. 

But isn’t there supposed to be a price cap coming?

That’s right: from March 2023, the government plans to introduce a cap on electricity prices that will apply retrospectively from January.

However, this still won’t take electricity bills back to pre-war levels. Instead, 80 percent of a household’s normal electricity consumption will be capped at a price of 40 cents per kilowatt hour, while any excess over this will be billed at ordinary market prices.

That is likely to mean that households that don’t reduce their consumption by at least 20 percent still face much higher bills, and even those that do will pay an average of eight cents more for a kilowatt hour of electricity than they were in 2021. 

READ ALSO: Germany plans to cap energy prices from start of 2023

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