Germany’s motor vehicle tax for new high-emissions vehicles is set to rise starting 2021, the Cabinet agreed on Friday. Finance Minister Olaf Scholz pushed forth the changes, saying they would likely result in a slight increase in revenue for the state in the short term.
Scholz noted that the goal was to have less high-emitting vehicles in the future and that if this was reached then “the state will have a considerable loss of revenue.” But the finance minister added that this would nevertheless be “a wonderful thing.”
The motor vehicle tax increase had been agreed to last September, as part of the government’s climate package between the governing CDU/CSU and SPD coalition agreement.
It had not been debated until now, when it was picked up in cabinet meeting in connection with the government’s coronavirus-related economic stimulus package.
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German road tax was already calculated based on a combination of engine size and emissions, but the new pricing system is designed to increase the costs for high-emissions vehicles while keeping levels for more frugal vehicles either the same or slightly reduced.
The new law starts adding surcharges once cars exceed average emissions of 95 grams of CO2 per kilometer (even the smallest and most frugal combustion engine cars cannot currently match this target), by adding a surcharge of €2 for each additional gram. The per-gram surcharge then increases in stages, culminating with a charge of no more than €4 per gram from 196 grams per kilometer (the emissions you’d expect from a far larger or faster car like a Ford Mustang or a BMW 7 Series).
It would mainly affect large vehicle types such as SUVs and pick-up trucks, while smaller vehicles would be largely unaffected.
Passenger cars with less than 95 grams of CO2 emissions will see an annual tax bonus of 30 euros for a maximum of five years.
New electric cars were already exempt from the vehicle tax through the end of 2025 and this exemption has been extended until the end of 2030.
Following the Cabinet decision, the law will now be considered in the Bundestag, where it could also undergo changes. Ultimately, though, given the grand coalition’s large majority, the passage of this proposal or something very similar appears secure.
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Greens: tax not high enough
Germany’s Green Party and environmentalists came out against the law, calling it was a merely symbolic move that did not go far enough.
“This small reform is above all symbolic politics, not climate policy”, Green Party leader Anton Hofreiter said.
The German Federation for the Environment and Nature Conservation also criticized the law, saying that the taxes and penalties should also be based on real CO2 emissions instead of the “official, but often unrealistic figures” on consumption.
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The law also drew the ire of the business-friendly liberal FDP party. “A vehicle tax increase in the middle of the economic crisis is insane and counterproductive,” FDP politician Oliver Luksic said.
“For employees and car owners alike, this is another low blow at an inopportune time,” Luksic said, pointing to the problems the automotive industry is likely to face as a result of the coronavirus.
But the automobile associations responded favorably to the law. The German Association of the Automotive Industry said it welcomed the reform as “a fair compromise that has demanded concessions from all parties involved and steers the motor vehicle tax in the right direction.”
The automobile association ADAC also approved of the law, calling it a “reasonable compromise between incentives for more climate protection and affordable mobility.”
