Europe’s governments are intervening with billions of euros from taxpayers’ money to relieve their citizens financially in the crisis. Many are more creative than the Germans. What they can think of ranges from frozen energy prices to an additional tax for war profiteers to heat checks.
The World Bank maintains clear language: it expects European natural gas prices in 2022 to double their 2021 levels, while coal prices are expected to rise by 80 percent. Indermit Gill, Vice President of the bank, puts it briefly in his current report: “We are experiencing the biggest commodity shock since the 1970s. These developments raise the specter of ‘stagflation’, meaning runaway inflation without economic growth.
And then Gil writes something in the politicians’ family book: “Policymakers should seize every opportunity to increase economic growth at home.”
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So what is happening to relieve the burden on citizens? Soaring energy prices are becoming a threatening problem across Europe. Many households are at risk of having their electricity cut off. They can no longer pay their bills. But energy-intensive companies are also struggling to survive. Governments are countering this with a variety of means. They lower the VAT on energy, give away fuel credits, increase child benefit or force a tax exemption for energy saving measures. There is little disagreement about these instruments.
The situation is different with the controversial electricity price cap that the European Union allowed Spain and Portugal on June 9th. The upper price limit for gas for power generation should initially be set at 40 euros per megawatt hour. In the next twelve months, it should average around 50 euros. In May, the price per megawatt hour was almost twice as high.
Teresa Ribera, the Spanish minister for ecological change, explained that almost 40 percent of private households and 70 percent of industrial customers would be relieved. The measure offers protection for consumers, companies and large-scale industry. For this purpose, more than eight billion euros of government funds are to flow to the energy companies. Germany and the Netherlands resisted this market intervention.
How Europe is resisting rising energy prices varies greatly. Here is the overview:
The energy tax on motor fuels will remain reduced to the European minimum until August. In addition, there is the nine-euro ticket for public transport. The distance allowance for long-distance commuters and the employee allowance were increased, as was the basic allowance for income tax. Employed, self-employed and tradespeople receive a one-time energy price flat rate of 300 euros. A total of 2.1 million people are to benefit from the heating subsidy. The EEG surcharge will be abolished from 2023.
Gas prices have been frozen at October 2021 levels. Electricity prices could be increased by a maximum of four percent, and low earners already received a one-off government payment of 100 euros. Since April 1, motorists in France have received a fuel discount of 15 cents per liter of fuel. Energy-intensive companies, where the energy bill is at least three percent of sales and who are threatened with a loss, should receive support.
Additional state loan guarantees are also intended to help companies. Anyone who gets into serious difficulties because of energy costs or the consequences of the Ukraine war can defer the burden of taxes and social security contributions.
The government will give every household the equivalent of 460 euros off their electricity bill from October. Most households are to receive a one-time discount on local taxes of 170 euros. The income limit above which citizens have to pay income tax and social security contributions will be raised by almost 3,500 euros. In addition, homeowners no longer have to pay VAT for energy-saving investments. The mineral oil tax was initially reduced by the equivalent of six cents per liter for one year.
5.2 million families receive subsidies for electricity and heating costs as a social bonus. Producers, importers and middlemen of electricity, gas and oil temporarily pay ten percent extra on their profits.
Gasoline and diesel prices have been reduced. Companies that are particularly energy or gas-intensive are to receive a tax credit of 25 percent in the second quarter of 2022; all other companies a tax credit of 20 percent on gas and 12 percent on other energy costs. Energy suppliers’ May and June bills can be deferred in up to 24 monthly installments. This is to be financed, among other things, by a special tax of 25 percent for energy companies on excessive profits.
As early as 2021, the government reduced VAT on electricity from 21 to ten percent. The seven percent tax on electricity generation was completely suspended, and the electricity tax was reduced from 5.1 to 0.5 percent in September.
Network charges will also be reduced. Low-income households benefit from an electricity price discount of 25 and 70 percent. In addition, the suppliers are not allowed to switch off the electricity for ten months if a bill is not paid. Until the end of June, 20 cents per liter of petrol and diesel will be reimbursed at petrol stations.
Thanks to subsidies for electricity and gas that are graded according to consumption, an average household saves 50 to 60 euros a month. Natural gas customers can apply for a subsidy of 20 euros per megawatt hour per month. At Easter, the government transferred a special child benefit payment to its citizens to compensate for inflation.
A big problem here are the households that, despite everything, can no longer pay their electricity bills. An EU-independent initiative aims to decouple energy prices from Greek household electricity bills. That’s why the government wants to tax the additional profits made by energy companies during the energy crisis at 90 percent from July.
Here the taxes on gas and electricity for private households and small businesses are to be reduced. Green electricity flat rate and contribution were suspended. There is also an inflation and energy cost adjustment. In total, almost 4 billion euros will be invested in various support programs for citizens, companies and farms.
VAT on electricity and gas was temporarily reduced from 21 to 6 percent. Each household should receive a one-time payment of 100 euros. Low-income households use a special rate for energy prices until September. Taxes on diesel and petrol fell to 17.5 cents per liter.
There, value added tax on energy was reduced from 21 to 9 percent and taxes on petrol and diesel were reduced by 21 percent. Households with very low incomes are to receive a one-time allowance of EUR 800 each.
Low-income households can get a tax-free heat check for the equivalent of around 800 euros. That equates to a $288 million subsidy to approximately 419,000 of the hardest-hit households.
The fuel tax is to drop to the EU minimum level from June 1st to October 31st. Car owners are to be relieved of the rising ridiculous prices with a one-off payment of the equivalent of 94 to 141 euros and the housing allowance for families with children is to be increased.
Until March, the government took over 50 percent of the pure kilowatt price up to a monthly consumption of 5,000 kilowatt hours. According to government information, this means support for electricity customers of the equivalent of almost 500 million euros.
The government has lowered its tax demands on electricity, heating oil and petrol, and eliminated them entirely on gas and food. This should relieve the citizens within half a year by 5.5 billion euros.
Road traffic taxes for cars, buses and trucks up to twelve tons have been abolished. Gasoline and diesel no longer have to be mixed with biofuels.
