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16 October 2019

Climate action

Clear and socially equitable incentives for climate-friendly behaviour

Today the German government adopted draft legislation to implement the Climate Action Programme 2030 in tax law and to amend the Aviation Tax Act.

  • Number 6

These decisions introduce important tax measures to strengthen climate action in the areas of transport, housing and energy production.

The following tax measures from the Climate Action Programme 2030 are to be implemented through the draft legislation approved today:

Reduction of VAT for intercity rail travel

As of 2020, rail travel is to become cheaper and thus more attractive. The VAT rate for intercity train tickets will be reduced from 19% to 7%, making long-distance rail travel about 10% cheaper. Deutsche Bahn has announced that it will pass on the entirety of this price reduction to passengers.

Increase in aviation tax

Along with making rail travel more affordable, air travel is to be made more expensive, reducing undesirable incentives to fly. Aviation tax will be raised considerably as of April 2020. Increased revenue from aviation tax will contribute to financing the VAT reduction for long-distance rail travel.

For domestic flights and flights within the EU (Band 1 distance category), the tax will be raised from €7.50 to €13.03, an increase of 74%. The tax for flights in the Band 2 and Band 3 distance categories will each increase by 41%. This means that for flights ranging from 2500 km to 6000 km, the tax will go up from €23.43 to €33.01, and for flights exceeding 6000 km, it will go up from €42.18 to €59.43.

Temporary increase in the tax allowance for commuters and introduction of a mobility bonus

To facilitate a socially equitable mobility transition, temporary relief is to be provided to commuters. From 2021 to 2026, the tax allowance for commuters will increase by five cents to 35 cents per kilometre beginning at the 21st kilometre of a commute. The time-limited nature of this measure and the increasing price of CO2 will result in decreasing compensation and a growing incentive to switch to a more environmentally friendly mode of transport.

A mobility bonus is being introduced for low-income earners whose taxable income lies below the threshold of the basic tax allowance and who therefore would not benefit from the increase in the tax allowance for commuters. This bonus is expected to benefit some 250,000 commuters. The mobility bonus will total 14% of the commuter tax allowance of 35 cents per kilometre beginning at the 21st kilometre of a commute.

Fiscal promotion of retrofitting to make homes more energy-efficient

The fiscal promotion of retrofitting measures to make owner-occupied housing more energy-efficient creates an incentive for homeowners to make their flats and houses more climate-friendly. As of 2020, energy-efficient retrofitting will be promoted by making it possible to deduct a percentage of its costs against tax.

The deduction can be claimed for individual retrofitting measures that are also eligible for support under existing assistance programmes for buildings. Twenty percent of costs can be deducted from taxes over a period of three years: 7% per year in the first and second years and 6% in the third year. In total, retrofitting costs of up to €200,000 per building can be claimed.

Increased real property tax multiplier for wind energy zones

As of 2020, local authorities will be able to set a special multiplier for real property tax in wind energy zones. This will enable local authorities to adequately share in the profits from wind turbines, which can motivate them to allocate more land for wind energy production. They will also receive compensation for the associated extra costs at the local authority level.