German government sticks to excluding households and small businesses from electricity tax cut

After a week-long debate following public outcry over the German government’s plans to exclude households and small businesses from tax reductions for electricity, the governing coalition ultimately decided to stick to its budget proposal and limit tax rebates to industry.

Jens Spahn, parliamentary group leader of chancellor Friedrich Merz’s Christian Democratic Union (CDU), said the goal remained reducing electricity costs significantly for everyone. “But we also want sound finances,” Spahn said in an interview with public broadcaster ARD. “After three years of recession, this can only be done gradually,” he added. “We would have wished to do more.”

Spahn argued that households would still see cost relief by 2026, when the government plans to reduce grid fees and abolish a gas storage levy. “The first step of the promise will be taken,” Spahn said, referring to the coalition agreement between the CDU/CSU alliance and the Social Democrats (SPD) that had promised to cut energy costs and reduce electricity taxes “for all.”

Energy industry lobby group Federation of German Energy and Water Industries (BDEW) criticised the decision: "The new government starts the term with breaking a promise," commented BDEW head Kerstin Andreae. The lobby group had called for reducing the electricity tax to the European minimum for all already for several years, as this would incentivise investments in climate-friendly technologies such as heat pumps or electric vehicles, Andreae argued in a statement.

According to news magazine Der Spiegel, the governing parties had been unable to come to an agreement on tax rebates for households even after long negotiations because extending the tax rebates beyond industry would cost about 5.4 billion euros in 2026 alone. The SPD’s parliamentary undersecretary, Dirk Wiese, stressed that reducing taxes for all was agreed in the coalition treaty. “We will enable significant reductions now and in the coming years,” said Wiese, adding that this would be done “step by step” while “keeping an eye on the financial situation.”

Jörg Dittrich, head of the German Association of Skilled Crafts and Trades (ZDH), also criticised the government’s decision. “Reducing electricity tax for all companies has not just been announced somewhere, it was repeatedly and bindingly written down – in the coalition treaty, in agreements of the coalition committee, and in the so-called relief package of the government,” Dittrich said. Many smaller companies had included the reduction in their planning, and the decision would now undermine their trust in policymakers, he argued.