Merz says cutting electricity tax for all now takes priority and must be in Germany's 2027 budget

German Chancellor Friedrich Merz said on Tuesday that cutting the electricity tax for every household and business now ranks ahead of other energy relief measures, including a cap on fuel prices. He said he had told his finance minister the cut must be part of the 2027 budget, even though it would cost about €5 billion a year in lost revenue.

Merz spoke at a regular economic policy breakfast of the Berlin Chamber of Industry and Commerce (IHK Berlin). "We are now in the final phase of the talks. I hope we manage it," he said, according to a dpa-AFX report carried by onvista. "For me it also has a certain priority over other energy policy measures that we might take with a fuel price brake, a price cap or something similar."

The comments raise the stakes in a dispute inside the governing coalition of Merz's conservative Union (CDU/CSU) and the Social Democrats (SPD). Finance Minister Lars Klingbeil, who co-leads the SPD, says he backs the idea in principle but has not seen a way to pay for it. The Bundestag's budget committee plans to finalize the 2027 budget on November 12. Quotations from German-language sources are 567politics translations.

What Merz said

Merz acknowledged the cost. "This is a major effort for the budget. I have a few ideas in my head about how we can do it," he said, without giving details. dpa reported that he said the ideas were being discussed "in these days."

"I have now told the federal finance minister that we have to manage it for the next budget round, that is, for the year 2027," Merz said. He put the lost tax revenue at €5 billion a year. "But we should do it."

At the same event, Merz said the coalition should take a further step on the aviation ticket tax, after reversing an earlier increase from July 1. "The second part must follow," he told a questioner who had called for scrapping the tax. Merz said airlines were moving traffic to airports outside Germany. "Then the fees are paid there, the passengers are there and the revenue is there," he said.

What the coalition promised

The CDU, CSU and SPD agreed in their coalition agreement to cut the electricity tax "for all" to the minimum allowed under EU law. Because of budget pressure, the cut has so far applied only to manufacturing businesses and to farming and forestry.

Under the Electricity Tax Act, the standard rate is €20.50 per megawatt hour, or 2.05 cents per kilowatt hour. Manufacturing firms and farms can claim relief of €20 per megawatt hour on power used for business purposes, which brings their effective rate down to €0.50. The relief is only paid once it exceeds €250 in a calendar year.

The EU's Energy Taxation Directive sets minimum rates of €1 per megawatt hour for private use and €0.50 for business use. A Green Party bill filed in April 2026 cites these figures from the directive's Annex I.

The Frankfurter Rundschau calculated that a cut from 2.05 to 0.1 cents per kilowatt hour would save about 2.32 cents including value-added tax. For a household using 4,000 kilowatt hours a year, that comes to about €93, if suppliers pass on the full cut. The paper cited the comparison site Verivox as estimating total relief for private households of about €3 billion. Estimates of the total cost to the federal budget range from about €5 billion, the figure Merz used, to about €6 billion in the Green bill.

How the debate got here

Merz first made the pledge after a two-day retreat of the CDU leadership in mid-October. Deutschlandfunk reported on October 12 that he wanted to use room in the budget for the cut if economic growth held up. He said then that the CDU was in a crisis of confidence that it had to work its way out of, and that he hoped the Bundestag would pass the bill quickly.

Klingbeil responded that he had nothing against the demand as such. But he said he could not confirm that growth would pay for a lasting tax cut.

The official tax estimate on October 22 sharpened the dispute. According to tagesschau, it forecast about €4 billion more federal tax revenue in 2027 than expected. But the government is also expected to be able to borrow less than Klingbeil had planned. "For 2027 we gain no new room overall, but we also don't have to close any new gaps," Klingbeil said. Anyone proposing measures "such as cutting the electricity tax" should "at the same time bring proposals for how to finance the whole thing." He said he was open to that, "but I have not yet heard these financing proposals."

The estimate put total federal tax revenue in 2027 at €398.6 billion. For all levels of government, the forecast was €10.9 billion higher for 2027 than in May.

One Union state leader has suggested a different approach. Saxony's premier, Michael Kretschmer of the CDU, pointed to the extra tax revenue, the Frankfurter Rundschau reported. He also called for talks on carbon emissions trading and on ways to lower grid fees. He said a cross-party approach was key to keeping Germany competitive.

The SPD's response on Tuesday

SPD parliamentary leader Matthias Miersch said on Tuesday that everyone was trying to deliver what the coalition agreement promised. But he said the financing question was anything but trivial, according to dpa. "That is why the chancellor must explain his thinking to me again," Miersch said before a meeting of SPD lawmakers. "At the moment I cannot give the all-clear."

The fuel price cap

Merz's remarks touched on another coalition plan. The Union's parliamentary leader, Thorsten Frei, said the Union still stands by the agreement to introduce a cap on fuel prices. But he said it had to meet conditions. "It must not lead to fuel no longer being available in Germany but in other countries, because it can be offered there at other prices," he said. He also pointed to the effects on Germany's 11 refineries. "But we are willing to implement what we agreed with each other," he said.

Economy Minister Katherina Reiche's ministry has drafted the fuel price cap. Our earlier story covers the draft and the SPD's demands on its trigger.

Business and consumer groups

A coalition of 13 associations on Tuesday urged Klingbeil to cut the tax for all "as quickly as possible and permanently." The appeal was organized by the Federal Association of Cooperating SMEs (BKM). The Frankfurter Rundschau published the letter in full.

Signers include the energy industry group BDEW, the retail federation HDE, the hotel and restaurant association DEHOGA, the digital association Bitkom, the electrical industry group ZVEI and the Federation of German Consumer Organizations (vzbv). "Electricity bills have to be paid today," the letter says. The cut "must not be made dependent on financial room that only arises in the future." The groups argue that lower power costs would strengthen household purchasing power and improve companies' liquidity. They also say cheaper power would support the electrification of buildings, transport and industry, including heat pumps and electric vehicles. The letter refers to a "political impulse" from the chancellor and from the conference of state premiers.

After the tax estimate, the skilled trades association ZDH, the industry federation BDI and the chambers of commerce (DIHK) also called for the promised cut, tagesschau reported.

The opposition

The Greens filed their bill to cut the tax to the EU minimum for everyone in April. The bill says the coalition's promise of an "immediate measure" for all "has not yet been kept." It argues the cut would help low-income households most relative to their income, simplify the law by making existing exemptions unnecessary, and encourage the switch to electric heating and transport. It puts the relief for consumers at about €6 billion a year, with federal revenue falling by the same amount.

Green budget spokesman Sebastian Schäfer called the higher revenue in the tax estimate "an economic flash in the pan" that would not solve the money troubles of local governments, according to tagesschau. Doris Achelwilm of the Left Party said the government had the wrong priorities and called for reversing cuts to family and social benefits.

The budget timetable

The budget committee's final session on the 2027 budget is set for November 12. Any cut for all would need to be written into the budget and passed as a change to the Electricity Tax Act. Neither Merz nor Klingbeil has said publicly where the money would come from. It is also not yet clear whether the cut would take effect on January 1, 2027, or later in the year.

For an earlier step in Germany's energy policy this week, see our story on the first capacity auction for new gas plants. Our Germany country guide explains the coalition and the parties in the Bundestag. Our methodology page explains how we source figures.