Erasing environmentally harmful subsidies could close Germany’s 2024 budget gap – gov’t agency

The German government’s budget crisis could be largely solved by cancelling environmentally harmful subsidies, the head of Germany’s Federal Environment Agency (UBA) has said. In an interview with business newspaper Handelsblatt, UBA head Dirk Messner said that the assumed gap of 17 billion euros in the 2024 budget, arising due to a court ruling that prohibited new borrowing, could “to a large extent be closed in the short-term” by doing away with subsidies. “Environmentally damaging subsidies are an anachronism from the fossil era” that Germany could no longer afford given the need to abide by strict budgeting rules while simultaneously making major investments in climate action, Messner said. The subsidies include tax rebates for diesel fuel, which could raise about six billion euros per year, the UBA head argued. A commuting allowance, also worth about six billion euros annually, could be modified to apply only to the 30 percent of commuters most in need of financial assistance. The savings would amount to four billion euros, Messner said. Five billion euros could be raised by erasing company car privileges, “which predominantly benefit high-earning citizens.” In addition to the 15 billion euros gained with the above measures, Messner said taxes on meat could be increased while levies on fruits and vegetables could be abolished, which could raise up to three billion euros. Taxing aviation fuel would likely only be possible for domestic flights, but this could still bring about 300 million euros more, the UBA head added. “All of this could be done within the current government’s term.” At the same time, citizens burdened by the higher costs could receive a so-called climate bonus as a compensation mechanism, where citizens receive a per capita payment from CO2 price revenues. It would favour those with a comparatively small carbon footprint, and is currently planned for introduction in 2025. The agency head added that Germany should create a special fund for climate measures “worth 50 billion euros plus X” that is put on a legally sound footing and could help safeguard decarbonisation measures outside of the regular budget.

An earlier UBA analysis had found that all environmentally harmful subsidies together amount to about 65 billion euros per year. The court ruling in November forced the government to remove 60 billion euros from a special fund for climate and transformation projects, as these were originally borrowed to fund pandemic response measures and could not be redirected in the way the government wanted. The money in the fund was earmarked for financing a wide range of climate measures over several years for which the government must now find alternative ways of funding. After ordering a budget freeze for new projects, the government is now scrambling to get the budget for 2024 in order and raise or save money across the board.