Germany Cuts Fuel Excise Duties Again — Czechia Prepares Its Own Response

The German government announced on Friday a temporary cut in excise duties on petrol and diesel — a move designed to soften the blow of the latest oil price shock triggered by the US and Israeli conflict with Iran. The discount will amount to 17 cents per litre for both fuels and will remain in place until the end of the year.

The decision has already been approved at the level of Chancellor Friedrich Merz and backed by the federal states, which will partly cover the resulting shortfall in revenue. The measure is expected to cost the German state budget an estimated €2.5 billion.

How the discount is calculated

The excise rate itself will drop by 14 cents, falling to 51.45 cents per litre of petrol (CZK 12.52) and 33.04 cents per litre of diesel (CZK 8.04). But since 19% VAT is then charged on top of that amount, the actual saving for drivers ends up higher — the full 17 cents (CZK 4.14) per litre.

The cut is especially notable for diesel, whose rate will fall to the minimum level permitted under EU rules. This is the same minimum rate the Babiš government applied in Czechia last spring — and it appears to be the one Czechia is set to return to at today's cabinet meeting.

Czechia prepares a mirror response

Industry and Trade Minister Karel Havlíček (ANO) said on Prima TV on Sunday: "We've said all along that once neighbouring countries start reacting to rising prices, we won't wait around. We have measures ready, and on Monday we'll present them after the cabinet meeting." He gave no specifics, but it's most likely the same approach as in spring — a debt-financed tax discount combined with price caps that in practice don't achieve much.

A direct comparison between the German and Czech steps is somewhat misleading, though: in Germany, on top of the standard excise duty, a gradually rising carbon tax has been in effect since 2021, so the cut starts from a higher baseline. In Czechia, meanwhile, petrol is effectively taxed at 2010 levels, and diesel at 2004 levels.

Politics trumps economics

There's also a difference in the state of the two countries' budgets: Germany is planning a larger deficit next year than Czechia (4.1% versus 3.5% of GDP), but that already accounts for a sharp increase in defence spending (3.1% of GDP compared to Czechia's modest 2%) and a new investment programme for transport infrastructure. In other words, Berlin can afford the discount having already met its major commitments — something that's harder to say about Czechia.

In essence, the tax discount amounts to burning money out the tailpipe: every crown saved at the pump will have to be borrowed by the state from somewhere, and the debt will eventually have to be repaid with interest. Everyone benefits indiscriminately — including wealthy motorists and foreign trucks passing through the country — while part of the discount risks simply being absorbed into the margins of refineries and petrol stations.

The cause of the latest price spike is the escalating conflict between the US and Israel on one side and Iran on the other, fuelled in part by Donald Trump's policies. This is driving up not only energy prices but also volatility in financial and bond markets, pushing up interest rates on government debt — the very debt that countries are using to finance their fuel discounts.

Read also: Savings accounts in Czechia: bank rates for 2026

Source: seznamzpravy.cz