German fuel price cut should bring cheaper prices from October 1

Germany’s CDU/CSU-SPD coalition will once again cut taxes on gasoline and diesel prices by 0,17 cents per litre from October 1. There is also discussion of a windfall tax.

Germany to cut fuel taxes from October 1

A German finance ministry spokesperson has confirmed that the government will cut tax on gasoline and diesel by 0,17 cents per litre starting Thursday. This means that fuel companies will pay less in tax and are expected, but not obliged, to pass these savings on to customers by reducing pump prices.

The ministry said the goal was to compensate for tax losses by introducing a windfall tax on energy companies, though this would be implemented at EU level and further details of the plan are unclear.

Finance Minister Lars Klingbeil (SPD) has long been in favour of a fuel company windfall tax in response to the Strait of Hormuz energy crisis, but Chancellor Friedrich Merz and Economy Minister Katherina Reiche (both CDU) oppose the idea.

Put simply, a windfall tax is a government-imposed levy on companies that have significantly profited from shifts for which they were not responsible, such as energy shortages caused by the Strait of Hormuz closure and Russia’s full-scale invasion of Ukraine.

A windfall tax could see more money flow into Germany’s public purse, while the planned fuel tax cut is expected to cost the taxpayer around 2,5 billion euros.

EU finance ministers met in mid-September to discuss the possibility of adopting a bloc-wide energy company windfall tax. Discussions are expected to continue in October.

CDU responds to poor election results

This marks the German government’s second fuel tax cut in response to the US-Israeli attacks on Iran and subsequent energy crisis.

The previous tax cut ran from May 1 to June 30 and, according to assessments from the Independent Monopolies Commission and the Federal Cartel Office, was “for the most part, passed on to consumers”. 

According to the Ifo Institute in Munich, when the government previously cut taxes by 0,17 cents per litre, savings were passed on to consumers nearly in full for Super E5 or Super E10 purchases during this period, but companies only passed on an average of 12 cents for diesel purchases.

Merz’s decision to resuscitate the policy is widely seen as a response to the CDU’s dismal results in recent state elections in Saxony-Anhalt, Mecklenburg-Vorpommern and Berlin. 

In Mecklenburg-Vorpommern the centre-right party saw its worst election result since 1949, taking just 5 percent of the vote. With Merz also burdened by record-low approval ratings of 13 percent, the chancellor is now promising “a clear roadmap for 2027”.

“Anyone who relies on their car every day is reaching breaking point,” Merz said when announcing the new fuel tax cut, claiming the government was “demonstrating that we are resilient in the face of the crisis and are helping our citizens”.