Bursting the Bubble

2015 – your last chance for a “free ride” on the German autobahn? – Weighing the German initiative for a toll on ‘foreign’ motor vehicles

5 January 2015 | by

Background

On 17 December 2014, despite protest from the European Commission and much scepticism from all political levels in Germany, the German cabinet passed transport Minister Alexander Dobrindt’s (CSU) draft bill on the PKW-Maut – a motorway toll that would de facto apply to foreign passenger cars only.

This idea made its way to the coalition treaty between Germany’s two largest parties – Angela Merkel’s conservative “Union” and the SPD – in December 2013 as a key concession to the CSU, the conservative union’s smaller, Bavaria-based sister party.

At the outset, the task looked daunting for the CSU.

When the proposal was first launched, not many people in Berlin or Brussels took it for more than campaign noise. The majority of the German political establishment rejected its populist undertone, and accused the CSU of scapegoating foreigners for Germany’s own infrastructural woes. Although the SPD had opposed the idea and Ms Merkel publicly rejected it during the campaign. There were also concerns regarding the feasibility of reconciling the toll with the EU’s anti-discriminatory rules.

While the legislative fate of this proposal on a national and EU level is still uncertain, the idea has proven rather resilient.

The CSU and Mr Dobrindt held both the institutional resources (i.e. the relevant ministry) as well as the “right to make the first move on the toll issue” given by a clause in the coalition treaty. In a key political victory, the CSU secured the support of German Finance minister Wolfgang Schäuble for the proposal.

The legislative state of play

Despite the initial opposition of the coalition partners, the parties eventually agreed to go ahead with sounding out ways for a toll on foreign cars, based on two conditions:

  1. Any toll would have to be in conformity with European law,
  2. Its consequences should not pose any additional burden on German car owners.

It is these two conditions that have kept German transport ministry officials busy over the past months, struggling to come up with a solution, which would fulfil both.

On 7 July 2014, Mr Dobrindt unveiled the long-expected basic outline of his car toll. It would apply to all vehicles under 3.5 tonnes (including motorcycles) using German roads. Under the proposal, starting in 2016, all car drivers will be able to purchase windshield stickers of an average cost of €88 per year [no more than €130/year] depending on cubic capacity, fuel-use and year of construction (payable as €10/10 days, €20/2 months or €100/year).

After the cabinet’s approval of the PKW-Maut proposal, it still has to pass the Bundestag.

Three key veils have been put on the original proposal which have won support of key decision-makers:

First, Dobrindt’s latest initiative pulls a legislative trick aimed at channelling the toll (applicable to all), and its reimbursements (only benefiting German drivers) through two separate legislative acts.

Separating the legislative acts is intended to make the proposal not immediately recognisable as connected thus guising any discrimination against foreigners.

According to the German transport ministry, legal studies have shown that the bill is compatible with EU law in the sense that it mirrors neighbouring countries’ motorway tolls. To comply, his ministry argues, the new legislation is formally introducing a toll that is applicable to all drivers.

For those foreign residents who are taxable in Germany, Dobrindt’s proposal also promises to make the same tax deductions promised to German car owners available to them.

Second, the proposal shows sensitivity towards ecological goals: tax credits will be offered to those drivers with a good eco balance. However, virtually only German car drivers have them.

Third, all revenues from the road toll – officially dubbed “infrastructure levy” – are announced to be re-invested in the maintenance and construction of Germany’s roads.

Indeed, closing the yawning gap in infrastructure investment could fix a key problem of the German economy. German road infrastructure, often hailed as the key driver of the whole EU economy, is ailing under high maintenance costs and urgently needed reparation and renewal. The annual gap in investments needed for German infrastructure is estimated to be as high as €7.2 billion (on top of the current investments of €10 billion/year). This figure excludes costs for extending the road network.

As these funds are not foreseen in Germany’s €298 billion annual budget (2014), a heated debate has recently emerged over who should pay for the necessary investments. On paper, Dobrindt’s toll promises to generate €500 million in additional annual revenue (as most of the €3.7 billion in gross revenue will be eaten up by lowering the personal vehicle tax) and is intended to pay for the most urgently needed projects.

There has been much scepticism over whether the costs of the introduction of the toll would be surpassed by its generated revenues. Even if the toll does generate some fresh funding, it seems it might not amount to more than a drop, which will rapidly dissolve in a large number of stalling infrastructure projects.

The starting date was left unchanged: 1 January 2016.

 

The political dimension

Pragmatic policy objectives (infrastructural funding, ecological considerations) are an imperfect guise for the politics which propelled the toll on the German political agenda: Dobrindt’s CSU is no stranger to striking populist chords. A hegemon of Bavarian politics for many decades, it has positioned itself as the mouthpiece of ‘the ordinary Bavarian’. The CSU has recently doubled down on its headline-making charge against the threat of low-skilled migrants from Bulgaria and Romania taking advantage of the German social welfare system, for which it coined the infamous term Sozialtourismus, ‘social tourism’. While falling short of an outright endorsement, the CSU also expressed sympathy for the anti-Islamic PEGIDA (Patriotic Europeans for the protection of the fatherland) protest movement or the latest announcements for a legislative initiative to limit the number of asylum seekers in Germany.

Its populist undertone, doubts over generated revenue and fears over adding red tape were key reasons why the proposal – until late – did not have many friends on the German cabinet bench. Prominently, Germany’s finance minister from the very beginning described the proposal as a no brainer which – if implemented – would result in more bureaucracy and may even cost rather than support the state budget.

At a local level, the proposal came under friendly fire from Dobrindt’s political family with state leaders (“minister-presidents”) from boarder regions decrying the potential impact on tourism. State leaders have already asked for exemptions.

Entrapped in these political battles, Dobrindt may have scored a key political point by swaying German finance secretary Schäuble to back his proposal. Yet it is at the state-level that the battle over the implementation of the proposal will be taken next.

Threatening noises from Brussels

Throughout the drafting process, the European Commission had kept rather a low profile on the toll – initially avoiding directly criticising the proposal before it was officially published, sticking to its wait-and-see approach.

While it is widely assumed that EU lawmakers prefer a European-wide solution, in early 2014, the European Commission’s DG MOVE declared that the idea of a toll on the Autobahn could not prima facie be declared incompatible with EU law; only the actual content of the policy could determine its fate. On 7 July that year, Siim Kallas said that the toll actually contained many positive elements while reiterating that its introduction should not discriminate against foreign drivers.

A few days ahead of the German cabinet meeting, which passed the legislative proposal in December 2014, the European Commission detailed its institutional stance in the form of a formal letter sent to the German Transport Ministry. In the letter, the EU’s new Transport Commissioner from Slovenia, Violeta Bulc, called Dobrindt’s toll plans out as incompatible with EU law.

Bulc also criticized foreign drivers of cars with smaller engines would have to pay an unreasonably high price for the short-term vignette.

Dobrindt answered to this claiming that the prices for short-term and annual vignettes for foreign drivers lay the draft law “within what offer our neighbouring states as well.”

In an eyebrow raising move, German Ministry for Transport also leaked the letter to the media describing the Commissioner’s criticism as superficial, inappropriate and inaccurate.

Next steps

After clearing the German cabinet, the introduction of a toll on German roads exclusively applicable to foreign vehicles appears today more likely than at any other stage since the beginning of Merkel’s third term.

Despite a preliminary legislative victory, key hurdles to the toll remain:

First, requests for local exemptions to the toll raise the spectre of a patchwork of individual highly bureaucratic exemption regimes which only a sophisticated implementation of the bill could tame.

Second, neither the legal department of the German transport ministry nor the European Commission are final arbiters in the legal dispute that has unfolded over the toll proposal. As Austria and the Netherlands have already announced intention to take any road toll applicable only to foreigners on German roads to court, the toll’s ultimate fate now hinges on whether the two-bill legislative feat will convince both the EU Commission and the EU judiciary. The European Court of Justice (ECJ) will likely take that role. While a form of direct discrimination would have halted the legislation immediately, European law is also keenly aware of indirect forms of discriminations with unfavourable conditions imposed which de-facto apply to non-German nationals only.

Third, there could be legislative competition from the EU side. The toll is a classical area where a community interest is at stake and common and coordinated action could deliver an added-value: It would be the task for the EU legislators to come up with a sound toll regime which is fair and effective across Europe. More deeply, a convincing strategy to address the funding gap in transport budgets across the Continent is needed.

Big challenges – Small solutions

Besides the technical wrangling over legal compatibility, budget neutrality or political expedience, a road toll in the EU’s largest Member State raises a more fundamental issue: Merkel’s concession sets a precedent for accepting a “Why should we pay if ‘foreigners’ don’t” logic which gives in to parochial a sentiments instead of making the case for a European solution

The issues are big: Bavaria is a key transit crossroads in the heart of Europe. Germany’s infrastructural investment gap poses a risk to the competitiveness of the German and the EU market. The idea of a user-based road toll could serve environmental objectives by incentivizing less CO2 intensive transport.

Yet the solution offered by national tolls is very small: Member States cannot tax their own way out of the challenges. Future competitiveness of the EU single market hinges upon a world-class infrastructure: Common (or at the very least coordinated) efforts to address infrastructural needs for a single market are needed. As the toll plans are moving a step closer to fulfilment, a tolled Germany raises risks: What if other states follow the German example and introduce levies? Transit through Europe by car could grow more costly, EU-wide travel less affordable risking to undermine the principle of free movement. If a legislative do-it-alone approach is the price to keep a lid on populist PEGIDA-type demonstrations, that price could soon exceed beyond the € 88 / year for a vignette. Bureaucratic levies across Europe could take a toll on EU-wide mobility, the ease of travel and risks to undermine the freedom of movement.

Yet this is where the political odds are: If you live in non-EU Member State, you could consider a New Year’s Resolution of travelling to Germany for a quick free ride on the Autobahn. 2015 could be your last chance.

 

What do you think?