Ifo boss Fuest criticizes plans to reduce fuel prices across the board

The head of the Munich Ifo Institute, Clemens Fuest, speaks out against the black-red coalition's plans to reduce high fuel prices across the board. “Reductions in VAT or energy tax are not the right instruments,” Fuest told WELT.

The government cannot eliminate the macroeconomic costs of higher oil prices. “It can only redistribute these costs.” To do this, they should choose instruments that are as precise as possible, demanded Fuest. "In addition, the important price signal that gasoline and diesel are in short supply should not be impaired. Tax cuts relieve the burden on all drivers, including many for whom this does not make sense."

Since the price of oil exceeded the $100 mark again last week, prices for gasoline and diesel at gas stations have risen significantly. Top politicians from the federal and state governments are outdoing each other with suggestions on how to respond. Chancellor Friedrich Merz (CDU) announced government measures on Tuesday. "I am of the opinion that we have to act. The exact instruments have not yet been determined. But you can assume that we will present a proposal on this very soon," he said in Berlin.

Union parliamentary group leader Thorsten Frei (CDU) and Economics Minister Katherina Reiche (CDU) spoke out in favor of a reduction in VAT. The SPD parliamentary group vice-president Armand Zorn, on the other hand, is calling for a price cap based on the Luxembourg model. Direct payments to citizens are also being discussed.

Fuest also believes such direct transfers make sense if politicians want to relieve the burden on low-income households. Long-distance commuters could be relieved by a higher commuter allowance, for example from 20 kilometers. “Slightly less targeted, but better than a gas tax cut, would be a cut in the vehicle tax,” he said. “This would at least not disrupt the price signal of high gasoline prices.” The government in Italy has decided on this measure.

Fuest, however, is critical of the price cap demanded by the SPD. It only works if individual companies have so much market power that they can drive up prices. The Federal Cartel Office has not yet been able to prove whether this is the case in Germany.

There is also a risk that supply problems will arise if the state-regulated price is set too low. The providers would then be more likely to sell the gasoline abroad. "The problem with excess profits taxes is that the large oil companies are based abroad. You can hardly get close to their profits with an excess profits tax," said Fuest in response to the demand of SPD leader Lars Klingbeil.