The German farmers’ union, the Deutscher Bauernverband or DBV, has led the opposition to recent tax proposals which would see the withdrawal of farmer rebates on agricultural diesel and certain tax advantages for vehicles used mainly on farms.

The government has been shaken by the scale of the protests, which have attracted public support from outside farming, and they have withdrawn, or diluted, some of the planned changes.

The budget tightening on which the government had embarked arose because of a Supreme Court decision that the German ‘debt brake’ must be respected, a requirement that fresh borrowing be kept inside strict limits.

Germany has been more cautious than many Eurozone members in keeping the lid on public debt, and the debt brake has been controversial – some economists feel that it is too restrictive and that an easier fiscal stance would be tolerable. The Supreme Court verdict has ended this discussion and the government will comply.

One result was the proposed withdrawal of state subventions to the farm sector, specifically outlays in the form of favourable tax deals, which are regularly described as ‘agricultural subsidies’.

All European governments offer assistance to farming from the national budget, through direct expenditures and taxation arrangements, and the European Union itself spends through the Common Agricultural Policy.

In Germany, there had been a set of arrangements which reduced the cost to farmers of running agricultural equipment, mainly tractors, through lower taxes on vehicles and a rebate on the tax paid on fuel.

The plan to withdraw the reduced tax on vehicles has been deferred, but the rebate on fuel tax will be withdrawn, although more slowly than the government had initially proposed. To that extent, the farm protests have yielded results.

System

The system of keeping green diesel prices below ordinary road diesel in Germany differs from the arrangements in Ireland.

Diesel for agricultural use is not ‘marked’ with a special dye in Germany, it is identical to ordinary road diesel used by cars and trucks and the retail price is the same. But registered farmers are entitled to claim a rebate, recently around 21 cents per litre.

It had been proposed to phase this out on the grounds that it was a subsidy to agriculture and the farm lobby argued that it would unfairly penalise farm incomes, which they felt were not extravagant. They appeared to be conceding the point that it was a subsidy, but contended that it was justified.

There is an alternative point of view, namely that it is not a subsidy at all, and the argument goes like this. Machines, including tractors, which burn diesel (or petrol) are either intensive users of the road system or they are not.

If not, the tax on road diesel should be seen as a user tax designed to recover the substantial cost of road maintenance, construction and renewal as well as traffic policing and the courts, and non-users should not pay it.

Home heating oil pays tax at a much lower rate than road diesel even though it has similar carbon emissions, but central heating systems do not travel around the road network.

Other taxes

There are other taxes on motoring, including annual vehicle licence fees and purchase taxes, heavier in the Republic than in the UK, as well as parking charges and road tolls at 10 points around the national routes.

The total annual take from all taxes on road users is very roughly in line with total yearly expenditure on the road system, although the government does not do these calculations and does not seek to explain the lower price of green diesel in this manner.

The government could reasonably claim that the system is akin to a user charge, although only the tolls, parking charges and fuel tax reflect usage, however imperfectly. Green diesel is marketed separately from road diesel and costs about 40 cents less at the pump, versus the 21 cents retrospective rebate in Germany, which has given rise to the recent demonstrations.

This discount is not a subsidy to farming, nor to owners of stationary engines or home heating systems; it is a reflection of the fact that tractors rarely leave the farm and accordingly are not deemed liable for the user-charge proxy in the form of excise duty. Since all combustion of refined oil products creates carbon emissions, green diesel and kerosene when used for non-automotive purposes should pay carbon tax, and they do.

But they should not be hit with the full fuel tax, since they are not responsible to any appreciable degree for road traffic and wear and tear on the road system.

The farmers in Germany will eventually end up paying the full whack, and the DBV has under-played its hand in conceding that the current rebate is an agricultural subsidy at all.