The broken promise – promised relief fails to materialize: The failed electricity tax reduction in Germany

Coalition breakdown on electricity tax: SPD finance minister ignores election promises – No electricity tax reduction in the 2025/26 draft budget despite coalition agreement

The new black-red coalition government under Chancellor Friedrich Merz is already facing massive criticism after only 50 days in office. The reason: A key campaign promise from the coalition agreement has been broken. Finance Minister Lars Klingbeil of the SPD has not included a reduction in the electricity tax for consumers in his draft budget for 2025 and 2026, even though this was clearly agreed upon in the coalition agreement between the CDU, CSU, and SPD.

Background of the political development

Following the snap federal election on February 23, 2025, a grand coalition of the CDU/CSU and SPD was formed, as no other majority was possible without the participation of the AfD. Friedrich Merz was elected Chancellor on May 6, 2025, with 325 votes in the second round of voting, having narrowly missed the required majority in the first round. Lars Klingbeil of the SPD assumed the office of Finance Minister and Vice Chancellor.

Coalition negotiations between the CDU/CSU and the SPD began on March 13, 2025, and were successfully concluded on April 9, 2025. The 144-page coalition agreement, entitled “Responsibility for Germany,” included extensive tax relief measures for consumers and businesses.

The broken promise regarding the electricity tax

The coalition agreement between the CDU, CSU, and SPD contained a clear commitment: “We want to provide permanent relief to businesses and consumers in Germany of at least five cents per kilowatt-hour through a package of measures. As an immediate measure, we will reduce the electricity tax for everyone to the European minimum.” This wording left no room for interpretation – the relief was explicitly intended to apply “to everyone.”.

The European minimum for electricity tax is 0.05 cents per kilowatt-hour, while German consumers currently pay 2.05 cents per kilowatt-hour. A complete reduction would therefore have meant a saving of two cents per kilowatt-hour.

In reality, however, the budget planning looks completely different. Klingbeil's draft budget only provides for a reduction in the electricity tax for manufacturing companies and agricultural and forestry businesses. This temporary regulation, which has been in effect since November 2023, is now to be made permanent. Consumers and small businesses will receive no benefit whatsoever.

Massive financial consequences for citizens

The financial consequences of this breach of contract are considerable for German households. According to the electricity consumption report, the average person in Germany consumes approximately 2,050 kilowatt-hours of electricity per year. With the current electricity tax of 2.05 cents per kilowatt-hour, this results in annual costs of more than 40 euros per person for this tax alone.

The promised reduction could have resulted in savings of up to €200 per year for families. These savings have now been completely eliminated. The comparison portal Verivox had already analyzed in March 2025 that a complete reduction of the electricity tax would have saved a family with a consumption of 4,000 kilowatt hours €93 gross per year.

This development is particularly regrettable given that electricity prices in Germany are among the highest in Europe. The average electricity price in mid-2025 was 39.69 cents per kilowatt-hour, with taxes and levies accounting for approximately 32 percent of the price.

Government's attempts at justification

The government's justifications for this breach of contract are unconvincing. Economics Minister Katherina Reiche of the CDU admitted frankly at the Industry Day in Berlin: "Here, the coalition agreement clashes with financial possibility and reality." This statement reveals that the government is deliberately making election promises without having secured their financing.

Sources within the Ministry of Economic Affairs have revealed that they would have liked to extend the tax relief to consumers, but the Ministry of Finance saw "no further financial leeway." This argument, however, is contradictory, as the government is simultaneously planning massive increases in spending in other areas.

Finance Minister Klingbeil defended his budget plan by arguing that priorities had to be set and that there was greater pressure to act among businesses than among private households. However, this approach directly contradicts the election promises, which envisioned tax relief "for everyone.".

Record spending despite alleged need for savings

The government's argument seems particularly hypocritical when one considers the actual budget figures. While there is supposedly no money available for reducing electricity taxes for consumers, spending in other areas is rising to record levels.

The federal budget for 2025 projects the cost of the basic income at €42.6 billion, an increase of €5 billion compared to the previous year. The standard benefit rates alone will cost the federal government €29.6 billion, an increase of €3.1 billion. In addition, the federal government's share of housing and heating costs will rise from €11 billion to €13 billion.

Including the states' expenditures, the total cost for the basic income amounts to almost 50 billion euros – an absolute record. These figures illustrate that there is indeed financial leeway, but the government is deliberately prioritizing other areas.

The total federal budget for 2025 projects expenditures of €503 billion, an increase of €28.8 billion compared to 2024. New borrowing, planned at €850 billion over several years, will reach a historic high.

Sharp criticism from the Taxpayers Association

Reiner Holznagel, president of the Federation of German Taxpayers, issued scathing criticism of the breach of contract. Speaking to the press, he stated: “The coalition government is breaking its promise in the coalition agreement: The electricity tax will not be reduced for everyone, but only for businesses. People who had hoped for genuine relief will be left empty-handed – this is not a minor change of course, this is a breach of promise.”.

Holznagel, who has been president of the influential Taxpayers Association since 2012, is considered one of the most vocal critics of tax waste and unsound fiscal policy. His assessment carries particular weight, as the Taxpayers Association, known as the "fiscal conscience of the nation," represents more than 200,000 members and is renowned for its independent evaluation of fiscal policy.

Limited relief measures as a consolation prize

To mask the breach of contract, the government is planning some limited relief measures, which, however, fall far short of what was originally promised. Three measures are scheduled to take effect on January 1, 2026: consumers will be relieved of the costs of the gas storage levy, the existing reduction in electricity tax for industry will be made permanent, and the federal government will assume a larger share of the costs of grid expansion.

These measures are expected to lead to a reduction in electricity prices of approximately five cents per kilowatt-hour. While this corresponds to the originally promised total amount of relief, the reduction in electricity tax was intended to be only one component of the relief package, not its replacement.

The irony of this situation lies in the fact that the government is attempting to achieve its original goal of a reduction of "at least five cents per kilowatt-hour" through alternative measures, while simultaneously breaking its core promise of lowering the electricity tax. This demonstrates that the financial resources are indeed available, but that political priorities lie elsewhere.

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The minister and her responsibility

Economics Minister Katherina Reiche is at the center of this controversy. The 51-year-old CDU politician, born on July 16, 1973, in Luckenwalde, is considered one of her party's most experienced energy policy experts. After studying chemistry at the University of Potsdam, she was a member of the German Bundestag from 1998 to 2015 and held various government offices before moving into the private sector.

As chairwoman of the German government's National Hydrogen Council and former CEO of Westenergie AG, Reiche brings extensive experience in the energy sector. This makes her admission at the Industry Day in Berlin that the government cannot or will not keep its own coalition promises all the more significant.

Reich's defense, that the government had to act "where the greatest pressure was – namely, to strengthen Germany's economic position," reveals a problematic set of priorities. While companies are being given relief, private households continue to have to pay excessive electricity taxes, despite having been promised the opposite.

Structural problems of German energy policy

The electricity tax scandal is symptomatic of deeper problems in German energy policy. Germany already has some of the highest energy prices in the world, which severely impairs its international competitiveness. The electricity tax, at its current rate of 2.05 cents per kilowatt-hour, has remained unchanged since 2003 and is significantly higher than the European minimum.

The complex structure of German electricity prices includes not only the electricity tax but also network charges, various levies, and value-added tax. Taxes and levies account for a total of 32 percent of the electricity price. Genuine relief for consumers would require a fundamental reform of this structure, which the current government is apparently unwilling to undertake.

Regional differences in electricity consumption exacerbate the social impact of the failed reform. While households in Saxony consume an average of only 1,075 kilowatt-hours per year, consumption in Saarland is 1,365 kilowatt-hours. The promised reduction in electricity tax would have particularly benefited households with higher consumption, which often live in economically disadvantaged regions.

International comparisons and EU law

Germany's electricity tax is not only above the European minimum, but also significantly higher than in many neighboring countries. The European minimum of 0.05 cents per kilowatt-hour would offer Germany considerable scope for tax relief without violating EU regulations.

Other EU member states have already adjusted their electricity taxes to the minimum level or significantly reduced them to strengthen their competitiveness. Germany is lagging behind in this development and burdens its citizens and businesses with excessive energy taxes.

The fact that the government is providing relief to manufacturing companies while private households receive nothing violates the principle of equal treatment and creates unjustified privileges. Small businesses and the self-employed, who do not fall under the exemption, are particularly disadvantaged.

Long-term effects on trust

The electricity tax scandal will have long-term repercussions for public trust in politics. When key campaign promises are broken after only 50 days in office, it calls into question the credibility of the entire political system.

What is particularly problematic is that the breach of contract was not caused by unforeseen events or changed circumstances, but by deliberate political decisions. The government could and should have calculated the financial consequences of its promises before the election.

The fact that spending on the basic income is simultaneously rising to record levels, while taxpayers are having to forgo promised tax relief, reinforces the impression of an unfair distribution of the burden. This could further fuel populist movements and exacerbate political polarization.

Constitutional issues

The systematic breach of coalition agreements also raises constitutional questions. Although coalition agreements are not legally binding, they form the basis for voters' trust in the elected parties.

The democratic principle enshrined in the Basic Law presupposes that elections offer a genuine opportunity for choice. When key campaign promises are systematically broken, this presupposition is undermined. Citizens have a right to expect their voting decisions to be based on reliable foundations.

The selective implementation of coalition promises – relief for businesses yes, for consumers no – could also violate the principle of equality enshrined in the Basic Law. Different groups may not be treated unequally without objective justification.

Economic consequences of failed policies

The consequences of the failed electricity tax reform extend far beyond the immediate financial burden. High energy prices not only burden private households, but also impair purchasing power and thus overall economic development.

At a time when Germany is experiencing its third consecutive year of recession, a noticeable reduction in consumer spending would have sent an important economic signal. Instead, citizens continue to pay excessive electricity taxes, while the government simultaneously complains about a lack of competitiveness.

The one-sided preferential treatment of industry in the electricity tax relief also exacerbates the existing structural problems of the German economy. While large corporations are given relief, small businesses and private households are left to bear the costs.

Perspectives for the future

The current legislative period will show whether the black-red coalition will break further key promises or whether the electricity tax is an isolated case. However, public trust in the reliability of political commitments has already been severely damaged.

Honest policymaking would require the government either to revise its budget to finance the promised relief measures or to openly admit that it cannot keep its campaign promises. The current maneuvering with alternative relief measures only masks the fact of the breach of contract.

In the long term, German energy policy must be fundamentally reformed to reconcile international competitiveness and social justice. However, the current government is missing the opportunity to implement this reform process credibly.

The electricity tax scandal will go down in history as an early example of the unreliability of the Merz government. Whether public trust can be restored will depend largely on how the government handles future challenges and whether it is willing to learn from its mistakes.

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