Federal Ministry of Economics warns against price caps and excess profits tax on fuel

The Federal Ministry of Economics has serious concerns about the measures demanded by the SPD to combat high fuel prices. Both a price cap on fuels like in Luxembourg and a so-called excess profits tax are “problematic,” it was said from ministry circles on Tuesday evening.

The Luxembourg model cannot be transferred to Germany due to the difference in size and the different market structures. “Such an intervention would also entail legal and financial risks for the state,” it continued. Reference was also made to Poland and Austria, both of which introduced their own price caps in the spring but withdrew them for various reasons.

The deputy SPD parliamentary group leader Armand Zorn is promoting a price cap based on the Belgian model. Since the oil crisis in the 1970s, the state has set a daily maximum price for fuel. The calculation formula takes into account the current oil price as well as processing and distribution costs. Gas stations could continue to offer their fuel cheaper, but would not be allowed to exceed the state-set maximum price. "Such a system allows downward price competition, but has an upward cap and costs the state nothing," said Zorn.

Another Njet from the Reiche house

Katherina Reiche's (CDU) ministry also rejects an excess profits tax for oil companies - from a "legal and economic perspective." The legality of a similar EU measure from the 2022 gas crisis is currently being clarified in court. “An excess profits tax at EU level would also have to be decided as a tax by unanimity,” the ministry said. That is hardly realistic.

Due to the recent massive increase in fuel prices as a result of the further escalation of the Iran war, the debate about possible relief for consumers has flared up again.

The head of the economists, Monika Schnitzer, expressly warned against another fuel discount or blanket price caps on fuel prices. Both measures would be "the wrong approach from an economic point of view because they weaken the scarcity signal of high oil prices and can cost the state a lot of money," said the economic researcher in the "Rheinische Post" on Wednesday. An excess profits tax is also “not an easy way out.”

Direct payment to those in need

Economics Minister Reiche advocates a different solution. She prefers direct payments to households with low incomes. These would have to be implemented by the Federal Ministry of Finance. “A corresponding tool is available,” said CDU politician Reiche in an interview with RTL/ntv. "This would be a way to provide relief quickly, but to do so specifically, namely for those income groups" who paid little or no tax.

However, contrary to what Reiche claims, quick relief hardly seems possible. According to the Ministry of Finance, such a direct payment mechanism does exist. But only around 19 percent of taxpayers have the necessary IBANs stored in the system, a spokesman said. A lot still has to happen in order to be able to pay off such a benefit. The question of financing is also open.

Chancellor Friedrich Merz (CDU) promised relief for the first time on Tuesday, but remained vague. It is possible to “take a look at various taxes and duties,” he said. Merz rejected an excess profits tax.

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