As part of Germany's response to the fuel price shock triggered by the war in Iran the federal government had planned for a tax-free 'relief bonus' that companies could pay to their employees.
But leaders of the German states weren't on board and the proposal was rejected in the Bundesrat last week, effectively blocking it from moving forward.
As of Wednesday leaders of the Union parliamentary group (CDU/CSU) have signalled the coalition committee has decided not to pursue to the project, meaning the proposal has been scrapped.
Here's why state representatives did not pass the employee relief bonus and what happens next.
What was the 'relief bonus' proposal?
The planned relief bonus was to be a tax- and duty-free special payment of up to €1000.
The federal government wanted to give employers the option of paying this kind of bonus to their employees. Crucially, the pay-out would have been made by employers. So it would be up to employers' discretion to offer the bonus to workers or not.
Coming alongside a temporary reduction on fuel taxes, the aim was financial relief for German citizens and residents as they are seeing increased costs caused by the Iran war.
READ ALSO: How much money will Germany's fuel price relief actually save you?
Why did the Bundesrat block the bonus?
German lawmakers at the state level took issue with how the bonus was to be funded.
In the Bundesrat, only four out of 16 states voted in favour of the premium. Even Bavaria had voted against the bonus, even though Bavarian leader Markus Söder (CSU) had been part of the coalition negotiations where the plan was born.
The relief bonus was expected to amount to significant tax losses, with almost two-thirds of this being borne by the states and municipalities. Tax losses of up to €2.8 billion were predicted.
An increase of the tobacco tax was intended to provide some counter-financing, but this was set to flow solely to the federal government.
Hamburg's Finance Senator Andreas Dressel (SPD) criticized that the relief bonus as planned would end up costing his city €700 million.
He was quoted by business news magazine Wirtschafts Woche as saying, "The federal government has provided counter-financing, but only for itself."Â
From the German states' point of view, the bonus is one more example of the federal government pushing measures that must be paid for primarily by states and cities.
State leaders have long been calling for a legal mandate to make the federal government share in the costs that it imposes on states and municipalities with its laws. So far, these calls have gone unheeded.
What happens next?
Initially the federal government had signalled that it would like to keep pushing the relief bonus forward, despite its lack of approval from the Bundesrat.
But as of Wednesday, it appears that the planned bonus scheme is dead in the water.
The Rheinische Post and the German Press Agency reported that Union parliamentary group leader Jens Spahn (CDU) and CSU state group leader Alexander Hoffmann wrote in a letter to the Union deputies that the coalition committee has decided not to pursue the project.
With the bonus having failed, the government's only financial relief measure in place is the fuel tax cut, which has reduced prices on diesel and petrol for drivers.
Interestingly, rejection of the bonus measure had made for some unlikely allies within state level politics: conservative Minister President of Bavaria, Markus Söder, and the Minister President of Schleswig Holstein Manuela Schwesig, of the Social Democrats, had both advised the federal government to drop the relief bonus after the vote in the Bundesrat.
The general consensus at the state level seems to be that the government should instead look at tax and pension reform options that would bring more direct relief to consumers in Germany.
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