Merkel’s Cabinet Backs Nuclear Tax in Budget Savings

Germany's Economy Minister Rainer Bruederle
Germany's Economy Minister Rainer Bruederle said today, “The government’s economic stimulus measures were with good reason only meant to be temporary.” Photographer: Michele Tantussi/Bloomberg

Chancellor Angela Merkel’s Cabinet backed a tax on nuclear power-plant operators, shunning utilities and German industry as the government holds to budget cuts it says are needed to protect the euro.

Ministers meeting in Berlin today approved the nuclear levy alongside a four-year program of spending cuts and revenue- raising measures worth about 80 billion euros ($102 billion), Finance Minister Wolfgang Schaeuble said. The draft legislation will now go to parliament for consideration.

Merkel is sticking to the savings plan even after the economy, Europe’s biggest, expanded at the fastest pace in 20 years in the second quarter. The cuts are necessary to comply with European Union budget-deficit rules that backstop the euro and ensure “solid” economic growth, Schaeuble told reporters.

“We’re fulfilling our responsibility as part of the European Union and the globalized world economy,” Schaeuble said. Germany, in urging other euro-region countries to do likewise, is “not being arrogant,” he said. “If you’re on the right path, then you can’t let up. You have to persevere.”

The savings program, elements of which were outlined in June, includes an air passenger tax of as much as 45 euros with immediate effect; welfare and defense cuts; a financial- transaction tax on banks of 2 billion euros per year from 2012; and a delay in the rebuilding of Berlin’s royal palace.

Ackermann Rebuffed

Merkel rebuffed pleas to drop the nuclear levy made in an open letter last month signed by the chief executive officers of E.ON AG and RWE AG, Germany’s biggest utilities, plus Deutsche Bank AG’s Josef Ackermann and BASF SE’s Juergen Hambrecht. In it, they said a policy of “helping the budget with new energy taxes blocks necessary investment in the future.”

The coalition will implement the nuclear tax “as budget consolidation means accessing additional revenue sources,” a copy of the draft bill posted on the Finance Ministry website said. The utilities may seek to pass on some of the cost of the tax to companies and consumers, the draft said.

Dusseldorf-based E.ON fell 0.2 percent to 22.17 euros as of 12:32 p.m. local time in Frankfurt trading, while Germany’s benchmark DAX Index rose 1.1 percent. Shares in smaller competitor RWE of Essen were down 0.1 percent at 51.65 euros. Both companies have fallen about 25 percent this year, making them two of the worst-performing DAX members. Of the 30 DAX companies, only HeidelbergCement AG has performed worse.

‘Cold Shower’

Announcement of the levy hit the utilities “like a cold shower,” Theo Kitz, an analyst with Merck Finck in Munich, who has “sell” recommendations on E.ON and RWE, said yesterday in an interview.

“They reacted pretty aggressively, with media campaigns and the lobbying that is usual in this industry,” he said. Even so, “it’s pretty clear the tax is coming. It’ll be a weight on them, especially on their cashflow. The utilities will probably invest less in coal- and gas-fired power plants as it looks like the government will commit them to funding renewable energy projects.”

Merkel’s government, near historic lows in opinion polls, faces public opposition to plans to extend the running life of nuclear-power plants as part of an energy policy to be announced by the end of September. Merkel said Aug. 30 that an extension of 10-15 years was “sensible.”

“The nuclear tax is pretty frustrating for the utilities, but the nuclear issue as a whole is by no means a done deal,” said Steffen Manske, an analyst at National Bank AG in Essen, who recommends investors “buy” shares in E.ON and RWE. “E.ON and RWE have already grown outside of Germany, where this tax won’t have any influence. It’s a very international business.”

The government aims for the tax on air travel to yield 1 billion euros per year, the draft bill shows. Flights will be subject to a levy of 8 euros per passenger for destinations in Europe; 25 euros to countries including Egypt and Israel; and 45 euros for all other destinations.

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