Bursting the Bubble

Germany’s PKW-Maut Bill – update on a potential toll for foreign drivers

14 September 2015 | by

Germany’s controversial PKW-“Maut” bill – a motorway toll that would de facto apply to foreign passenger cars only, originally planned to come into force in 2016, is currently still pending an open infringement procedure from the Commission. The Commission argues that the bill is not compliant with the EU principle of non-discrimination while the German transport ministry holds that the issue falls within Member State competence.

The toll is the flagship project of the CDU’s smaller, Bavaria-based sister party, 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. There were also concerns regarding the feasibility of reconciling the toll with the EU’s anti-discriminatory rules.

However, although the SPD had opposed the idea and Chancellor Merkel publicly rejected it during the campaign, the CSU managed to secure this as a key concession during in the December 2013 coalition treaty between Angela Merkel’s conservative “Union” and the SPD. 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.

After much political wrangling, Transport Minister Alexander Dobrindt unveiled his plan on 7 July 2014: the toll would apply to all vehicles under 3.5 tonnes (including motorcycles) using German roads. Under the proposal, which was proposed to become law on 1 January 2016, all car drivers will be able to purchase windshield stickers of an average cost of €70 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).

According to confidential estimates of the German ministry of transport, foreigners are expected to opt for the ten-day option (15.8 million) over the annual toll (8 million).

In order to guise any discrimination against foreigners, Dobrindt’s 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.

Dobrindt wants all revenues from the road toll – officially dubbed “infrastructure levy” – 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 €299.5 billion annual budget (2015), a heated debate had emerged over who should pay for the necessary investment gaps. Subtracting expenses, the toll is expected to yield €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.

Yet, 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 on hot concrete, which will rapidly dissolve in a large number of stalling infrastructure projects.

Threatening noises from Brussels

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

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. In July 2014, former Transport Commissioner Siim Kallas said that the toll actually contained many positive elements while reiterating that its introduction should not discriminate against foreign drivers.

However, 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 incompatible with EU law and said that that 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.

Based on “considerable doubts” over the proposal meeting non-discrimination standards, EC president Juncker announced on 1 June 2016 an infringement procedure against Germany.

The government has responded to the Commission’s letter of formal notice by stating once again that the tax was not discriminatory and therefore not in contradiction with EU law and has asked the Commission to drop the infringement proceeding.

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.

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

The Commission is analysing Germany’s arguments, if the Commission is dissatisfied with the comments, it may send a so-called reasoned opinion for comment with a 2-month deadline.

Legislative timeline:

  • December 2014: Bundesregierung passes bill
  • March 2015: Bundestag approves bill
  • May 2015: Bundesrat passes law decides not to appeal to the Conciliation Committee – the CSU project formally passes the German legislature.
  • June 2015: European Commission launches infringement proceeding against Germany.
  • August 2015: Germany’s ministry of commerce submits comments denying breach of EU law within deadline.
  • Autumn 2015 (est.): Commission responds by stating reasons why it believes the Member State has breached EU law. Two months later, the German government will take a decision to comply.
  • Beginning 2016 (est.): In case it deems German compliance insufficient, the European Commission is authorized to ask the European Court of Justice to open litigation procedure.
  • Beginning 2018 (est.): After an average time of two years, the ECJ decides on the case and may ask Germany to adapt its law as soon as possible.
  • Spring 2018 (est.): In case Germany still fails to comply, the Commission – after seeking a further official statement – may propose a lump sum or penalty payment.

Big challenges – Small solutions

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’.

In a most recent shunning of a trans-European transport initiative, Dobrindt launched a legislative proposal, which would ban noisy freight wagons from using the German railway network by 2020. 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 recently – did not have many friends on the German cabinet bench. Prominently, Germany’s finance minister 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 which has now cleared the most important legislative hurdle of passing the Bundestag. Yet it is at the state-level that the battle over the specific implementation of the proposal will play out next.

However, 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 sentiments instead of making the case for a European solution.

The issues are big: Bavaria is a key transit 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.

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 the EU judiciary. 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.

A likely final outcome may see Germany introduce a tax applicable to all its citizens without discrimination – factually breaking a campaign promise and leading to more incoherence on trans-European auto routes.

To save some of the time lost in a long-lasting legal dispute, it would be the task for member-states in the Council to come up with a sound toll regime which is fair and effective across Europe until then. Such a system should be embedded in a convincing strategy to address the funding gap in transport budgets across the Continent.

What do you think?