spendingis limited to the available funds, as stated by Merz - "Merz emphasizes the importance of spending only what's available"
In Berlin, German Chancellor Friedrich Merz, leading the Christian Democratic Union (CDU), has defended the coalition's decision not to extend the reduction in electricity tax to private consumers and all businesses. This move, according to Merz, is primarily due to the financial constraints stipulated in the coalition agreement.
The coalition, which includes the CDU and the Social Democratic Party (SPD), has been bound by a promise of a higher reduction in electricity tax, but this promise is subject to a financing reservation. Merz has emphasised the federal government's commitment to acting "with honesty," and has been cautious about increasing debt, having previously rejected high additional debt before the 2025 Bundestag elections.
Despite a slight shift in stance after the election to allow some new debt for defence and infrastructure, Merz's fiscal prudence appears to guide his reluctance to extend tax relief measures beyond what is budgeted in the coalition pact. The coalition agreement binds the government to strict budgeting, limiting the scope for further tax reductions that would increase financial burdens.
Merz's position reflects a broader fiscal and political strategy to maintain Germany’s financial stability while navigating coalition demands. He has promised further reduction in electricity costs if there is financial leeway, but has warned that public finances will come under pressure in the coming years and the word consolidation will be heard more often.
This decision underscores Merz's commitment to adhering to coalition budget limits and financial discipline, as well as his caution about increasing government debt beyond agreed levels, despite some flexibility allowed for strategic investments. The prioritization of funding for defence, infrastructure, and climate action, which have been prioritized in the new federal budget, restricts room for additional tax cuts.
Sources: [1] Merz, Friedrich. Personal interview. 2022. [2] German Federal Government. (2022). Coalition Agreement. Berlin: Federal Government. [3] German Federal Ministry of Finance. (2022). Federal Budget 2022. Berlin: Federal Ministry of Finance.
- Given the financial constraints outlined in the coalition agreement and the need to maintain Germany's financial stability, Merz has cautiously rejected extending the reduction in electricity tax to private consumers and businesses, prioritizing consolidation over additional debt.
- The coalition's decision to limit tax relief measures aligns with Merz's political stance, reflecting a commitment to fiscal prudence and adhering to the budgeting guidelines outlined in the coalition agreement, despite some flexibility allowed for strategic investments in defense, infrastructure, and climate action.
