Merz fends off backlash over tax cut as recriminations fly in Berlin

German Chancellor Friedrich Merz on Thursday defended his government's decision to retain electricity tax for most businesses and private consumers, as recriminations flew in Berlin over what many saw as a broken campaign promise.

Cutting the tax for all was a key plank of the coalition agreement between Merz's Christian Democratic Union (CDU), the Bavaria-only Christian Social Union (CSU) and the centre-left Social Democrats (SPD), but was surprisingly left out of Finance Minister Lars Klingbeil's draft 2025 budget last week due to financial concerns.

Despite pressure from business associations, opposition groups and lawmakers within the coalition partners, a high-stakes meeting of party heavyweights in the coalition committee was unable to secure a deal to finance the policy in hours-long negotiations late on Wednesday.

Instead, the committee backed Klingbeil's plan to cut the tax for large industries, agriculture and forestry only, along with further measures to lower electricity network charges and abolish a gas storage levy.

In a written statement, Merz said he was "aware the coalition agreement holds out the prospect of an even greater reduction" in the tax. "But all plans in the coalition agreement stand under a financing proviso."

"We can only spend the money that we have," Merz added. "And we're spending a lot of money."

CDU parliamentary group leader Jens Spahn earlier defended the committee's decision.

"We remain committed to the common goal of significantly reducing electricity costs for everyone," Spahn told public broadcaster ARD. But "solid finances" are important, he maintained.

The SPD's Klingbeil also insisted that, as finance minister, he must "use taxpayers' money responsibly, while CSU leader Markus Söder said the coalition would attempt to pass the cut by the start of 2027.

Backlash from opposition, business leaders

The climbdown was slammed by Britta Hasselmann, parliamentary group leader for the Greens, who charged Merz with "broken campaign promises," given the fact that the tax cut was supposedly part of the coalition's "immediate programme" to boost the sluggish economy.

The far-right Alternative for Germany (AfD) also condemned the decision, with co-leaders Alice Weidel and Tino Chrupalla calling it "completely unacceptable that the CDU/CSU and SPD are denying ordinary citizens the electricity tax relief promised in the coalition agreement."

Tensions within the coalition emerged on Thursday, with Hendrik Wüst, CDU premier of the powerful western state of North Rhine-Westphalia, blaming the SPD's Klingbeil for the failure to reach an agreement.

"Above all, it is the finance minister's job to make this possible - and there are a lot of possibilities," he told the Politico news outlet.

The committee's decision was met with frustration by representatives of mid-tier businesses.

Jörg Dittrich, president of the German Confederation of Skilled Crafts (ZDH), said the "reduction in electricity tax for all companies was not just announced somewhere - it was set out in writing several times and with binding effect."

"When key, repeatedly promised relief measures do not materialize while expensive political projects are implemented at the same time, companies' confidence in the credibility of political action as a whole begins to waver," he stated.

Dittrich was referring to the "mothers' pension," a CSU-backed policy that recognizes years spent raising children, which is set to be extended under the coalition's plans from January 2027.

Dirk Jandura, president of the Federation of German Wholesale, Foreign Trade and Services (BGA), said the measure proved the government has enough financial leeway for "superfluous pension gifts," but too little for "significant improvement in basic economic conditions."

"The fact that it is still not possible to reduce the electricity tax for all companies during the longest economic crisis in post-war history is disappointing," he added.

Germany has suffered two consecutive years of recession, with experts predicting another difficult year ahead for Europe's largest economy amid the impact of US President Donald Trump's tariffs.

Merz's government, which took office in May, has promised to boost the country's economic recovery through investment, cutting regulations for business and lowering persistently high energy prices.