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Automobile Aid

DW staff (jg)October 30, 2008

The German government is planning to introduce a two-year, tax-free scheme for new environmentally-friendly cars. But environmentalists have warned the plan will backfire because the criteria are not strict enough.

Picture of fumes coming out of exhaust
Will the government tax break plan backfire?Image: AP

"We want to introduce an automobile tax exemption for cars that are particularly clean," Environment Minister Sigmar Gabriel told ARD public television on Thursday, Oct. 30. "That is the proposal that the finance minister will present. But we still need the approval of the federal states."

Automobile taxes are raised by Germany's 16 states and Gabriel said Finance Minister Peer Steinbrueck would negotiate with the states about how to make up for the resulting tax shortfall.

"We of course do not want the states to shoulder the burden on their own," Gabriel said.

The tax breaks are likely to last one or two years depending on the car's particular specifications.

Criteria not strict enough, say environmentalists

Toyota Prius hybrid car
Environmentally, Japan is still putting the German car industry to shameImage: Toyota

Environmentalists attacked the proposal saying the criteria for the tax exemption were so lax they would include most new cars including gas guzzlers such as sport utility vehicles, which since 2005 have had to meet new emissions standards.

"Petrol-thirsty automobiles with big motors will benefit," the NGO German Environmental Aid said in a statement, calling Chancellor Angela Merkel's grand coalition as "car-driven."

"This is a giant purchase incentive for climate killers," it said.

The deputy leader of the Greens' parliamentary group, Juergen Trittin, has attacked the move, saying the government was acting blindly. He said Cabinet members were organizing a sell-off of pollution-spewing gas guzzlers.

"If people are to be encouraged to buy, then they have to promote the purchase of low-consumption cars -- of vehicles that produce less than 120 gram of CO2 per kilometer," the former environment minister urged.

The German newspaper Rheinische Post said the tax break would probably cost 2 billion euros in 2009, citing government sources.

Older cars would not be eligible for the exemption, which Gabriel said the Cabinet planned to approve next Wednesday and roll out on Jan. 1.

Gabriel said Berlin aimed to eventually introduce a sliding scale for car tax pegged to the amount of carbon emissions that they produce rather than the size of their engines. CO2 emissions are blamed for driving global warming.

German carmakers welcome the plan

BMW logos
Green groups say the proposal is nothing but a support for carmakersImage: dpa

The car industry in both Europe and the United States has been appealing to governments to act to revive sales in the financial-crisis struck sector. The VDA, the German automobile industry's biggest interest group, welcomed the plan.

"The tax holiday proposed today for new cars can provide an impetus to spur sales of vehicles, stabilize the economy and thus ensure jobs in Germany," VDA President Matthias Wissmann said in a statement. He also added that the industry would welcome a tax based on the level of CO2 emissions.

With credit scarce and sales plunging, EU Industry Commissioner Guenter Verheugen threw his weight on Wednesday behind a call to give the bloc's carmakers cheap loans worth up to 40 billion euros to invest in the development of eco-friendly cars during the financial crisis.

The car industry is a key pillar of Europe's biggest economy, home to giants including Volkswagen, BMW and Porsche. Up to now, the sector has been rather resistant to moving away from its traditional niche market of large, luxury cars with big engines.