Germany's Government Waters Down Controversial Cost-Cutting Plan

The potential elimination of a tax exemption for agricultural vehicles had infuriated the country's farmers.

A protest rally organized by the German Farmers' Association in Berlin, Dec. 18, 2023.
A protest rally organized by the German Farmers' Association in Berlin, Dec. 18, 2023.
Fabian Sommer/dpa via AP, File

BERLIN (AP) — The German government on Thursday watered down cost-saving plans that have infuriated farmers, announcing that it is giving up a proposal to scrap a car tax exemption for farming vehicles and will stagger cuts to tax breaks for diesel used in agriculture.

The cuts were part of a package agreed last month by leaders of Chancellor Olaf Scholz's unpopular three-party coalition to fill a 17 billion-euro ($18.6 billion) hole in the 2024 budget.

Farmers staged a protest with tractors in Berlin and called for more demonstrations this month, and even Agriculture Minister Cem Özdemir spoke out against the cuts being implemented in full. He said farmers have no alternative to diesel.

The budget revamp was necessary after Germany's highest court annulled an earlier decision to repurpose 60 billion euros (almost $66 billion) originally meant to cushion the fallout from the COVID-19 pandemic for measures to help combat climate change and modernize the country. The maneuver fell afoul of Germany's strict self-imposed limits on running up debt.

A government statement Thursday said Scholz, Vice Chancellor Robert Habeck and Finance Minister Christian Lindner have now agreed to maintain the car tax exemption for farming vehicles in order to save those concerned "in some cases significant bureaucratic effort."

The tax breaks on diesel will no longer end all at once, giving farmers "more time to adapt," it added. They will be cut by 40% this year, with another 30% being cut in each of the next two years.

"We have found a good solution that averts a disproportionate burdening of agriculture — you know I always warned against that," Özdemir said in a brief statement to reporters in Berlin.

However, the German Farmers' Association said the government's about-turn didn't go far enough and that it would stick to its planned protests.

"This can only be a first step," its chairman, Joachim Rukwied, said in a statement. "Our position is unchanged: Both proposed cuts must be taken off the table."

Other aspects of the budget deal included an abrupt end to subsidies for buying new electric cars, which originally were due to stay in place until as late as the end of this year. Habeck's Economy Ministry announced an end to new applications with less than two days' notice.

The government also raised Germany's levy on carbon dioxide emissions from fuel by more than previously planned at the start of the year, which is expected to impact prices for gasoline, diesel, natural gas and heating oil.

The CO2 price rose to 45 euros (about $49) per ton of emissions from the previous 30 euros. The government had planned a smaller increase to 40 euros before the budget verdict.

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