Motor Legislation Merkel's CDU Breaks Tax Pledge

Angela Merkel's ruling Christian Democrats have been promising not to raise taxes, but on Wednesday the government is to approve a bill that will bring in €1.1 billion in additional revenues through motor vehicle tax.
The government is planning to raise taxes on newly registered cars.

The German government Wednesday will approve a bill by Finance Minister Wolfgang Schäuble to take in more than €1 billion ($1.1 billion) in additional revenues between 2018 and 2022.

The extra revenue will come from a reassessment of the way motor vehicle tax is calculated.

The move directly contradicts campaign promises that Angela Merkel's ruling center-right Christian Democratic Union made as they gear up for an election campaign.

At the party's conference in the western German city of Essen less than two months ago, members carried a motion that stated: "We are fundamentally ruling out tax increases, and we are making clear statements to this effect. On the contrary, we want to reduce taxes for the hard-working people in this country."

Then, at the beginning of the year, the party leadership again ruled out tax increases in a declaration. It added that a third of the country's surplus was to be used for tax cuts, "especially for families and people with small and medium incomes."

Now it seems that has been forgotten. The decision to raise extra revenue by changing the way vehicles are taxed has come about as a result of Volkswagen's Dieselgate scandal. The crisis over the manipulation of emissions data has led to a Europe-wide review of emissions standards being pushed through much earlier than planned.

In the future an international procedure, the Worldwide Harmonized Light Vehicles Test Procedure (WLTP), will be used to test vehicles both in testing stations and on the road. The tests produce more reliable results, but mean that measured vehicle CO2 emissions will rise. The number is incorporated into the calculation of the motor vehicle tax, because it contains an environmental component.

The finance ministry and the transport ministry have been in negotiations for weeks over the effectiveness of a road tax on foreign drivers in Germany

The European Union wants to introduce the WLTP gradually starting in May. But the German government is choosing to adhere to its own schedule. It plans to make the new testing rules mandatory during the registration of new vehicles as of a fixed date: September 1, 2018.

The program is expected to pay off. According to the German finance ministry, tax revenues will increase by €10 million in 2018, €105 million in 2019, €220 million in 2020, €330 million in 2021 and €435 million in 2022, as the number of new registrations rise. This information comes from the draft policy, seen by Handelsblatt, that has since been amended as the party was keen not to send a message of a rising tax burden as the election campaign begins, but the extra tax costs have been approved.

The draft policy now says that “the introduction of a cut-off date for application of the CO2 values according to WLTP," is welcome.

There is a criticism of the fact "that higher, more realistic CO2 values are being taken into account without simultaneously adjusting the motor vehicle tax rate."

Finance ministry officials told Handelsblatt the tax revenue calculations were left off the final draft as they could not be credibly quantified. They added that it is unclear whether automakers would react quickly and roll out more fuel-efficient vehicles, or it was more likely that buyers would choose more fuel-efficient models. The draft bill now includes the official statement, an alternative fact of sorts, that there are "no budgetary effects."

But this rationale is not very persuasive. The finance ministry and the transport ministry have been in negotiations for weeks over the effectiveness of a road tax on foreign drivers in Germany. According to Transport Minister Alexander Dobrindt this tax will raise half a billion euros, although this depends on several assumptions. The data used to predict the number of foreign vehicles is more than vague. In addition, planners are assuming 3 percent annual growth across the board, as well as the type of road tax disc foreigners will buy.

While calculations are not possible with the motor vehicle tax, in the case of the road tax they are supposed to serve as a reason to justify the program. In fact, the project threatens to become a money-loser, because of those vehicle owners whose behavior the ministry is supposedly unable to calculate.

Finally, German vehicle owners are to receive a refund of the road tax after the planned launch in 2019 through the motor vehicle tax. Owners of new vehicles will even receive a bonus because their engines satisfy the Euro 6 environmental standard. Because three million new vehicles are registered each year and are in compliance with this standard, the number of bonus vehicles is rising.

On Tuesday, the departments re-negotiated who will be accountable for the growing shortfall and whether all of this conforms to E.U. law. The draft bill on the road tax should also be discussed by the cabinet on Wednesday.


Daniel Delhaes reports on politics, transport and airlines. Jan Hildebrand leads Handelsblatt's financial policy coverage and is deputy managing editor of Handelsblatt's Berlin office. To contact the authors: [email protected] and [email protected]