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Heating for expensive money: Considerable price differences

Photo: Hauke-Christian Dittrich / dpa

It has been almost a year since the Bundestag passed a tax cut that relieves millions of households of the high heating costs: Since October 2022, only seven instead of 19 percent VAT has been due on natural gas and district heating. "The state must not be a beneficiary of the fact that life is becoming more expensive for people," said Federal Finance Minister Christian Lindner (FDP) at the time, explaining the tax cut, which was to apply until the end of March 2024, i.e. until the end of the coming heating season.

But now the government is planning to raise the VAT rate on gas and district heating again at the turn of the year. "Fortunately, the war-related price peaks on the gas markets have now subsided," says government spokesman Wolfgang Büchner, explaining the U-turn. "We have returned to a normal level, and faster than was expected in 2022." On top of that, the tax cut was only intended as a short-term relief and never as a permanent relief from the outset.

For households with gas heating, this involves a lot of money. According to the comparison portal Verivox, gas currently costs an average of 12 cents per kilowatt hour. For a family with a consumption of 20,000 kilowatt hours per year, the costs add up to 2400 euros. With the higher VAT rate, on the other hand, you end up with a good 13.3 cents per kilowatt hour or 2675 euros per year (without taking into account the price brake, as this is due to expire at the end of March 2024). And the more expensive your own tariff, the greater the absolute effect of the planned tax increase.

Warning of curious effects

Criticism of the government's plans comes from those companies that would have to charge their customers for the higher prices for gas and district heating: After the difficult past winter, it would be important to "signal stability and security with regard to energy prices," says Kerstin Andreae, Managing Director of the German Association of Energy and Water Industries (BDEW). The best way is to let the temporary VAT reductions on gas and heat, together with the energy price brakes, expire synchronously only on March 31, 2024."

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BDEW Managing Director Kerstin Andreae: "Hardly comprehensible for customers"

Photo: Bernd von Jutrczenka / dpa

However, utilities are running out of time, Andreae warns. "It is still completely unclear whether the price brakes will expire on December 31, 2023 or be extended by ordinance until March 31, 2024." The state brakes cap the price of gas at 12 cents per kilowatt hour or 9.5 cents per kilowatt hour for district heating, but only for 80 percent of consumption. This is done with many billions of euros of taxpayers' money.

Andreae warns of curious cases if the VAT reduction were to expire for the time being, but the price brakes should continue to apply at the same time. Then, for many customers whose tariffs have so far been slightly below the price limits, the brake could take effect again with the higher tax rate. In addition to the enormous billing and communication effort for the energy providers, this would also be "hardly comprehensible for customers," says Andreae.

For the state, it is about 2.1 billion euros

Criticism of the early tax increase also comes from the ranks of the federal states. "It cannot and must not be the case that citizens are expected to increase VAT from 7 to 19 percent on the gas price during the coming heating season," says Mecklenburg-Western Pomerania's Minister of Economic Affairs Reinhard Meyer (SPD). Consumers have been prepared for the special regulation to apply until the end of March 2024.

The opposition in the Bundestag also complains that the traffic light coalition is behaving contradictorily in energy policy. "Artificially raising energy prices with a VAT increase is the wrong way to go," says CDU leader Friedrich Merz.

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On the other hand, the state would earn significantly more money with an early withdrawal of the tax cut. The Ministry of Finance estimates the effect at around 2.1 billion euros. In the draft budget for the coming year, Lindner's house has no longer invested the subsidy. However, the draft is now in the parliamentary process and is not expected to be finally adopted until December.

BDEW boss Andreae warns that the government must finally acknowledge that utilities need a certain amount of time to change their billing systems and inform customers in good time. This was already massively underestimated when the price brakes were introduced, Andreae complains. "The chaos of last year must be prevented at all costs." At that time, utilities would have done everything between Christmas and New Year's Eve to implement the brakes on time.

Millions of households are affected by the VAT debate. According to the BDEW, a good 49 percent of homes in Germany are heated with gas, and a further 14 percent with district heating. However, the price differences are considerable. For example, gas costs an average of just over 15 cents per kilowatt hour in the local basic supply, while new customers are also offered contracts for around nine cents.

Regardless of VAT, consumer advocates therefore recommend comparing the tariffs of reputable providers. Anyone who can get out of an expensive contract and conclude a low-cost tariff for which the price brake no longer applies also saves the general public from paying this subsidy.

With material from the agencies Reuters and dpa