Where governmental decisions get made: The cabinet room at the German Chancellery. Photo by Sarah Kiegeland.
The Energiepreispauschale as a financial relief in the German economic and social system
“My financial situation has been…precarious. At the time [of the crisis], I wasn’t living extravagantly at all. But still, I was calculating how much money I had to spend every day.” – Leo (25)
The war in Ukraine has real financial implications for European citizens, specifically because of Europe’s energy dependence on Russia (Zika et al., 2022). A sudden drop in energy supplies from Russia caused energy prices to increase from March 2022. This increase in energy prices resulted in a higher cost of living, which burdens households’ consumption options (Eurofound, 2022). Especially Germany was interdependent with Russia and was greatly affected when Russia cut gas exports to Germany (Zika et al., 2022).
To mitigate the financial impact of the increase in energy costs, Germany announced the Energiepreispauschale (EPP), which translates to “energy price flat rate”, in July 2022. This measure was intended as a one-time payment to cushion rising energy costs. It was directed towards employees, students and pensioners in Germany (Bundesamt für Justiz, 2022).
This blog takes a closer look and discusses how the EPP is trying to solve the financial burden of the energy crisis in the context of the German economic and social system, neoliberalism. This blog is based on scientific articles and illustrated with quotes by interviewee Leo.
Leo, 25, is almost done with his master’s degree in philosophy at the Humboldt University in Berlin. His time studying fell squarely into the cost of living crisis caused by the Ukraine war. Although Leo works as a freelance teacher next to his studies, he has strongly felt the impact of the increased costs of living. Although most German citizens and residents received the EPP, it was students like Leo who were to benefit from the financial relief of the EPP – a measure meant to reduce energy costs in the wake of the crisis. As a student in a financially unstable position affected by the higher energy costs, we interviewed him about his experience with the EPP.
Setting the stage: The German neoliberal welfare state
Germany’s social welfare policies have strongly decreased since the 1980s. This is because the current German social and economic system, neoliberalism, is very individualistic (Urban, 2010). On an economic level, neoliberalism promotes a free market ideology: The market is a place of natural competition where consumers rationally choose the best product, which leads to the best outcome for all. The state is not to interfere strongly with individual freedom or the economy per se. On a societal level, this translates to the idea that individuals are rational and know what is best for them. They are responsible for their well-being, and they can provide for themselves by working hard and participating in the economy (Schram, 2018).
Neoliberalism discourages welfare policy. This is because the logic of individual responsibility extends to the idea that the state’s role is not necessarily to ensure those who can’t secure their living are cared for. Instead, the state wants to ensure they get to a point where they can do so as quickly as possible. Spending money on welfare is not encouraged beyond that point (Schram, 2018).
Outside of the energy crisis, then, German welfare policy usually addresses issues such as poverty in an individualised manner (Urban, 2010). Unemployment benefits, for example, do provide financial aid. However, they mandate career counselling and regular check-ins with the unemployment office to ensure the professional development of the person receiving assistance and discipline them if they do not try their best to find work (Butterwege, 2015).
What is the Energiepreispauschale (EPP)?
The German government decided on the EPP in response to the energy crisis and rising living costs associated with the war on Ukraine and life after the pandemic (Bundesministerium für Bildung und Forschung, 2023). The government established these measures in three so-called Entlastungspakete, which translates to relief packages, between July and September 2022. The EPP was part of the second and third relief packages available to all employees, students and seniors residing in Germany on December 1, 2022. The second package was open to employees, who received it as a €300 gross sum via payroll in September 2022. The net relief was reduced per the personal tax burden (Bundesministerium der Finanzen, 2023). The third relief package was available to students and seniors since they are considered low-income. Seniors received a taxable 300 euro lump sum via their pension funds in December 2022.
What problem is the EPP trying to solve?
The Gallery of decision-makers: Portraits of seven former Federal Chancellors of Germany. Photo by Sarah Kiegeland.
Like many welfare policies, the EPP is trying to solve a financial issue: That of higher energy costs. However, unlike neoliberal policies such as the German unemployment benefits, the policy does not view the financial issue in question – higher energy costs – as an individual responsibility. This is evident because the policy is universal – all employees, pensioners and students receive a certain amount. The slight differences in the tax mechanisms made the sum more or less equal after taxes. Unemployed citizens did not receive it, but that is explained by the fact that those receiving social welfare benefits are not usually responsible for paying their energy costs (Arbeitslosengeld II – Hartz IV – Bürgergeld, n.d.).
The collective nature of the policy shows that the government assumes the energy costs financially impact all groups of people more or less equally. Interestingly, the relief packages also included additional relief mechanisms to target lower-income groups specifically (Bundesministerium der Finanzen, 2023). However, the universality of the EPP shows a recognition that even those in the upper/middle-income classes would be affected by the higher energy costs.
The EPP focuses on a financial issue, but the context in which the government introduced this policy is crucial: The energy crisis is associated with the Ukraine war. To illustrate, co-chair of the German Green Party (part of the governing coalition) Omid Nouripour said of this policy: “It is important to show unity in the crisis. We will not let [Russia] divide us” (Balser & von Bullion, 2022).
In its scope and framing, the EPP as a one-off sum is a relief mechanism to cushion the higher energy and living costs caused by the crisis. The policy does not address the profound ways these high energy costs will affect those in financially precarious positions in the long term because it is a one-off payment. In fact, those in higher income packages experienced financial relief in absolute terms. In contrast, the absolute relief in euros for those in lower income classes was much lower (Schumacher et al., 2022).
Leo agrees: “It’s not like I felt taken care of by the welfare state or anything. It was very helpful to receive, but at the same time not very helpful at all. Considering that my rent went up 50 euros a month to adjust for energy costs, it paid for four months of that. But my rent will continue to be high, and although the rise in living costs has somewhat stagnated, they are still higher than before the crisis. The problem did not go away. I have had to be very responsible with my finances.”
As this quote illustrates, the relief provided by the EPP was limited. Even though the EPP recognises a collective responsibility for the state to relieve higher energy costs, this is unique to the energy crisis caused by the Ukraine war. Within the EPP, the state does not recognise that the energy crisis affects citizens from different income classes in different ways, and for differing amounts of time. Thus, the overarching responsibility to make ends meet remains with the individual beyond the one-off payment – and the welfare state remains individualistic.
References
Arbeitslosengeld II – Hartz IV – Bürgergeld (n.d.). Landeszentrale für politische Bildung Baden-Württemberg. https://www.lpb-bw.de/hartz-iv
Balser, M., Von Bullion, C. (2022, September 4). “Wir werden da durchkommen”. Sueddeutsche Zeitung. https://www.sueddeutsche.de/politik/energiekrise-koalitionsbeschluss-entlastungspaket-scholz-1.5650662
Bundesamt für Justiz. (2022, December 16). Gesetz zur Zahlung einere inmaligen Energiepreispauschale für Studierende, Fachschülerinnen und Fachschüler sowie Berufsfachschülerinnen und Berufsfachschüler in Bildungsgängen mit dem Ziel eines mindestens zweijährigen berufsqualifizierenden Abschlusses (Studierenden-Energiepreispauschalengesetz – EPPSG). Bundesministerium der Justiz. https://www.gesetze-im-internet.de/eppsg/BJNR235700022.html
Bundesministerium der Finanzen. (2022, December 16). Schnelle und spürbare Entlastungen in Milliardenhöhe. https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Entlastungen/schnelle-spuerbare-entlastungen.html
Bundesministerium der Finanzen. (2023, May 19). FAQs “Energiepreispauschale (EPP)”. https://www.bundesfinanzministerium.de/Content/DE/FAQ/energiepreispauschale.html
Bundesministerium für Bildung und Forschung. (2023, February 14). Energiekrise und Inflation: Entlastung für Studierende. https://www.bmbf.de/bmbf/shareddocs/kurzmeldungen/de/2022/09/energiekrise-hilfe-fuer-studierende.html
Eurofound (2022), Energy price lump sum allowance for people paying income tax, measure DE-2022-23/2226 (measures in Germany), EU PolicyWatch, Dublin, https://static.eurofound.europa.eu/covid19db/cases/DE-2022-23_2226.html
Schram, S. F. (2018). Neoliberalizing the Welfare State: Marketizing Social Policy/Disciplining Clients. SAGE Publications Ltd eBooks, 308–322. https://doi.org/10.4135/9781526416001.n25
Schumacher, K., Claudius, J., Unger, N., Zerzawy, F., & Grimm, F. (2022). Energiepreiskrise: Wie sozial und nachhaltig sind die Entlastungspakete der Bundesregierung. Ad-hoc-Studie im Auftrag des Umweltbundesamtes und des Bundesumweltministeriums im Rahmen des Forschungsvorhabens „Soziale Aspekte von Umweltpolitik“. Öko-Institut.
Urban, H. (2010). Wohlfahrtsstaat und Gewerkschaftsmacht im Finanzmarkt-Kapitalismus: der Fall Deutschland. WSI-Mitteilungen, 63(9), 443–450. https://doi.org/10.5771/0342-300x-2010-9-443
Zika, Gerd et al. (2022). Die Folgen des Kriegs in der Ukraine und der Energiekrise für Wirtschaft und Arbeitsmarkt in Deutschland, IAB-Forschungsbericht, No. 11/2022, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg. https://doi.org/10.48720/IAB.FB.2211