Economy

Price limits, vouchers, and tax cuts: Unlike Austria, most governments are trying to fight inflation

Price limits, vouchers, and tax cuts: Unlike Austria, most governments are trying to fight inflation

Energy prices are going through the roof. But for the first time, the Austrian government did not decide on anything at the energy summit. Many other European governments have already taken measures against inflation in the summer and are now extending them—relatively unattached to the ruling party’s colour. Whether Orbán in Hungary or Sanchez in Spain: they are taking steps against the enormous inflation. The think tank Bruegel has analysed the action taken by European countries. The comparison shows: Politicians do not have to stand by and watch life become more and more expensive for the population – they have various opportunities for action.

Inflation already began rising in the summer of 2021. Due to the Ukraine war and the following increase of gas and oil prices, this development is gaining further momentum. Inflation is higher than it has been for 30 years. The only measure taken by the federal government to date is the offering of an energy voucher worth 150€. This is far from covering the additional costs for higher electricity and heating expenses. The SPÖ and the FPÖ are demanding the abolition or halving of value added tax (VAT) on energy costs – the federal government has so far rejected this. VAT reductions, along with transfer payments such as energy vouchers, are also among the most popular measures against inflation in other countries. Furthermore, governments take advantage of price ceilings and contracts with state-owned enterprises.

€415 cost-of-living adjustment in Great Britain – free refurbishments in Ireland

The most popular concept for relieving the population is energy vouchers. However, the concrete design varies greatly. This is also related with the different framework conditions in the countries.

  • In Sweden, it is so dark and cold in some regions during the winter months that there are households with enormously high energy consumption. These received €195 each from the government for the months of December, January and February.
    In Belgium, there has been a social energy tariff for those with low incomes since the Corona pandemic. This has now been extended. Almost 500,000 households benefit from it. Additionally, there is a €100 energy voucher for each household and €80 on top for those on low incomes.
  • In France, every household with a net income of less than €2,000 received a €100 energy voucher.
  • Ireland also has an electricity voucher of €100 for everyone. In addition, €220 million in subsidies are made available for renovation measures for households. More than half of this will go to households affected by energy poverty to sustainably reduce their electricity and gas needs through renovation measures.
  • In Greece, they extended the heating allowance – 1 million households will receive it in the future, which is 300,000 more than in the previous year. In addition, there is a €42 per month subsidy for the electricity bill for all of them. For people living in social housing, this subsidy is even higher and amounts to €180 per megawatt hour.
  • Luxembourg increased its cost-of-living allowance by €200 to better protect vulnerable households from rising energy prices.
  • In Norway, the government covers 80% of household energy costs above 0.7 kroner (about 7 cents) per kilowatt-hour.
  • Great Britain transfers £350 (approx. €415) to most of its households to compensate for rising prices.

Belgium cuts VAT on electricity to 6% – Poland abolishes it altogether for groceries

VAT cuts are also a popular means of fighting inflation in much of Europe. Some examples:

  • Belgium cut VAT on electricity from 21% to 6%.
  • Similarly, in Italy: there it was reduced to 5%.
  • Cyprus reduced it for low-income households from 19% to 5% for six months.
  • Spain started already in summer and reduced the VAT on electricity from 21% to 10%.
  • In Poland, they decided to abolish VAT on food, gas, and fertilizer was completely for six months. For petrol and diesel one now pays only 8%, for heating 5%.

Italy and Romania impose special taxes on energy companies

Experts note that reductions in sales taxes always carry the risk of failing to automatically lead to lower prices for consumers. Part of them could also be retained by the energy companies. For example, according to the Turkish-Green government, the reduction of VAT in the catering sector during the pandemic was primarily a relief package for businesses.

To compensate for this, Belgium, for example, changed its tax structure on energy prices. The aim is to keep the tax revenue constant – instead of percentages of turnover, certain taxes will be levied as fixed prices in future, so the tax does not rise with the price increases.

Romania and Italy are financing their measures against inflation with a special tax for energy companies, among other things. Whoever charges more than €91 per megawatt hour in Romania must pay an extra contribution to the state.

Price ceiling in France and Hungary

Hungary has introduced price ceilings for petrol and diesel. The government limited the price of petrol and diesel to 480 forints (about €1.30) per liter. Without this regulation, diesel would currently cost just under €2.

France took a similar approach to electricity prices, obliging the majority state-owned electricity provider “Électricité de France” not to raise prices by more than 4 percent over the entire year. A limit is also being discussed for gas prices.

10% rebate in Cyprus & cancellation of network fees in Italy: state-owned enterprises are obliged to act

Governments ordered state-owned companies in other countries to take measures against inflation.

Cyprus has adopted a 10% rebate on electricity bills for all households from November to February.

Greece has ordered the state-owned Public Power Corporation to extend its existing rebate policy to fully cover the price increase for an average household consuming up to 600 kWh per month.

Portugal‘s state-owned grid operator waives 50% of grid usage tariffs for households and 94% for businesses.

In Italy, they abolished grid fees and charges on gas bills altogether. In addition, they forced energy companies to accept consumers wanting to pay their bills in instalments.

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