Germany A review of the 2014 agricultural diesel tax break

By Mariah Monnens, Spencer Tuskowski, and Tyler Hubler

Germany’s Diesel Tax Break

• Agricultural and forestry sector producers will be able to claim a tax break on diesel consumption from 2014 to 2016, as introduced in an EU meeting in March of 2013• Germany will support firms in the agricultural sector

in the form of tax benefits: €214,80 per 1000 liters of diesel or a total of approximately €400 million per year• We will suggest reasons for not implementing this

subsidy

Economic History

• End of WWII: two separate countries - East and West.

• 1990 after fall of Berlin Wall: economic reunification

• Slow economic growth until mid 2000s

• Switched currency to Euro in 2002• Part of a larger

economy

Important dates and moments

Modern Economy

• $3.4 trillion

One of largest economies

Low and stable inflation

• Weakened currency• Cheaper exports

Switching to Euro from Deutsche Mark

Trading• France, United States, United

Kingdom, Italy, NetherlandsTrading partners

• Transport equipment (including automobiles), electrical machinery, chemicals, some food products and wine

Exports

• Similar, but include raw materials and semi-finished products for industryImports

• Exceeded EU’s 6% threshold• Asked to boost investment and reduce

savings rates• Being blamed for draining European

and global growth

High trade surplus since

2007

The German Agricultural Sector• One of the smallest sectors of the

German economy

• Most policies made by EU and not Germany

• Subsidy and Export Subsidy Programs

• Economic value of agricultural exports is €60.1 billion, growth of 7% since 2011

• Germany is a net-importer of food products

• Germany offers far more tax breaks on use

of fuel compared to other countries such as USA

• 84,858,000,000 pounds of diesel fuel used in 2011

Effect of the Subsidy

Analysis of the PolicyPros

• Consumer and producer surplus gains

• Germans engaged in agricultural or forestry production receive further support in a competitive market

• Benefits to the domestic diesel industry

Cons• Cost (€1,2 billion over

3 years)• Lack of assurance of

the policy’s effects• If prices fall below

world or regional prices for agricultural or forestry products, producers who reside in countries that are strong trading partners with Germany will suffer

ConclusionWe stand by our proposal to end the

subsidy over concerns with its ability to increase agricultural production in Germany