Merz proposes an electricity tax resolution
In the heart of Germany's political landscape, a coalition committee meeting is scheduled for Wednesday, with the leaders of the CDU, CSU, and SPD set to discuss key issues, including the ongoing electricity tax dispute. This dispute revolves around legal and regulatory scrutiny over additional electricity charges and tax exemptions, amid criticism of the government's selective tax relief approach.
Federal Chancellor Friedrich Merz has proposed a solution ahead of the coalition leaders' meeting, suggesting a focus on doing more for private households. Merz acknowledged that perhaps they should have communicated more with their own factions beforehand, specifically regarding the electricity tax. This admission comes in the wake of criticism from figures such as Jens Spahn, the chairman of the Union faction, and Hendrik Wüst, the Minister President of North Rhine-Westphalia.
The Federal Ministry of Finance and the Chancellery are currently working on this issue. According to the Ministry, a proposed reduction in electricity tax for all consumers would cost an additional 5.4 billion euros next year. However, Merz assured that they will do what they can, within the limits of the budget.
The electricity tax will not be reduced for everyone, as announced in the coalition agreement, has sparked broad criticism. Merz admitted that there might be room for improvement in communication within the coalition. He and Finance Minister Lars Klingbeil (SPD) defended the course on the electricity tax, referring to budgetary constraints.
The current status of the electricity tax dispute in Germany is influenced by a legal review by the German Federal Fiscal Court (BFH). On May 19, 2025, the BFH admitted a case for full review concerning additional energy-related charges. This review is focused on whether certain electricity surcharges qualify as lawful “other indirect taxes” under EU law. The European Court of Justice (ECJ) has reinforced that Member States may only impose additional electricity levies if they are clearly defined, serve a specific non-budgetary purpose (such as environmental objectives), and adhere to procedural safeguards.
Germany has some of the highest electricity prices globally, leading the government to lower the electricity tax to the European minimum for consumers at the start of 2025. However, subsequent budget constraints limited these reductions primarily to sectors like agriculture and forestry, excluding many other businesses and industries. This selective tax cut has drawn criticism for causing market distortions and breaching coalition agreements, potentially undermining trust from trade associations and companies.
In light of these challenges, Chancellor Merz's government supports targeted tax relief to ease financial pressures on key sectors but must balance fiscal constraints and comply with EU legal frameworks. The government’s approach involves partial tax cuts while awaiting judicial clarity on the legality of additional charges and refunds as dictated by recent ECJ rulings.
As the coalition committee meeting approaches, the focus remains on finding a solution that balances fiscal responsibility, legal compliance, and consumer protections. The ECJ’s strict interpretation guides these developments, emphasizing the need for clear definitions, specific non-budgetary purposes, and procedural safeguards in electricity taxation.
- Amid the ongoing electricity tax dispute, Federal Chancellor Friedrich Merz has suggested a shift in focus towards private households, acknowledging that communication with their own factions about the electricity tax could have been improved.
- The electricity tax will not be reduced for everyone, and the proposed solution from Chancellor Merz's government involves targeted tax relief to key sectors, aiming to balance fiscal responsibility, legal compliance, and consumer protections, while awaiting a legal review by the German Federal Fiscal Court on energy-related charges.
