A. Skertsos: Why is the reduction of fuel tax not realistic or fair as a solution?

The international energy crisis and the Russian invasion of Ukraine have sent international and domestic fuel and heating fuel prices soaring. Rising prices are causing dizziness and anxiety for all of us and especially for the most vulnerable. It is also true that 60% of the final consumer price on motor fuels in Greece is due to VAT and excise duty.

Some, therefore, reasonably (and others cunningly and irresponsibly) demand their reduction as a measure of accuracy.

Let’s see how realistic and appropriate this is as a measure of income relief especially in our country, with the peculiarities of our public finances (high debt and obligation for primary surplus to reduce the debt annually) but also the composition of tax revenues and of the tax base.

The large tax burden on fuel in our country occurs for two reasons. First, because of the limited tax base, ie the income that is taxed directly every year. This means that the tax revenues that finance schools, hospitals, security and defense, come to a greater extent from the indirect taxation of goods and services than from the direct taxation of income.

Revenues from VAT and VAT on fuel constitute 33% of the total VAT revenues and approximately 12% of the total tax revenues of the State Budget on an annual basis. They therefore constitute a significant part of the budget revenue. Any intervention in the rates at the present time should be done in a budget-neutral manner. Interfering only with indirect taxes creates a significant hole in public revenues that will have to be covered elsewhere by additional taxation.

It is the government’s goal, and progress is already being made, to change the composition of public revenues and bring them closer to the European average in an environment of accelerated economic growth. This is already happening with the expansion of electronic payments and cross-checks to reveal undeclared income. It is, however, a process that takes time and is not achieved overnight.

Given the current composition of public revenues, then, an immediate reduction in indirect taxation will deprive the state of critical revenues for the financing of basic public goods and services and will lead to further public borrowing and thus an increase in the deficit and debt.

The second reason is that the government directs the available fiscal space to the reduction of specific taxes that boost disposable income and at the same time support the healthy growth of the economy and employment. This has been done with the reduction of at least 30 taxes in the last two years, ie with the reduction of taxes on labor and capital and not on imports (dld and motor fuels) but also with the targeted bonus support of lower incomes.

Reducing fuel taxes is tantamount to subsidizing imports, that is, the economies of other fuel-producing countries, in a way that is not targeted at the weaker strata.

Reducing VAT or VAT on fuel is a horizontal measure that has a high budgetary cost (they bring in about € 6 billion a year to the coffers), with an extremely uncertain outcome as to whether it will eventually reach the consumer to support the most vulnerable households.

In addition, as a horizontal measure it will benefit the richer those who consume more gasoline than the poorer ones for whom the difference will be marginal.

If there is one thing that the ten-year debt crisis has taught us with harsh and unjust austerity policies, it is that we need to be very careful and disciplined with revenue, expenditure, government borrowing and the tax policy mix that leads to a virtuous cycle of economic growth. Support measures must always be compatible with the resilience of the economy and targeted at those who really need them.

Therefore, the reduction of fuel tax as a measure is considered ineffective in tackling the problem and those who support it should explain:

-which taxes they propose to increase in addition, and

-if they support the country’s additional external borrowing leading to a widening deficit and debt and possibly a new round of tough economic supervision and memoranda.

Does all this mean that we can do nothing to alleviate income from the unprecedented, international wave of precision that affects our country? In no case. We have been doing a lot since the autumn and we will continue to do more as long as this crisis lasts.

– More than 2 billion euros have been allocated to households, businesses and farmers to cover part of the increases. Is it enough? No, and an additional package of measures will be announced next week. The Energy Transition Fund will subsidize households and businesses for the duration of the energy crisis.

-Special provisions with high fines have been passed and applied to control profiteering in all links of the energy chain – energy producers, marketing and retail outlets – so that a cost analysis can show whether a company has increased its profit margins more than period before the energy crisis.

– Any additional revenue – in addition to the budget – coming to the public coffers is returned to society and businesses to support income.

-The magnitude of the increases in international prices is historically unprecedented and can not be addressed by any country individually. That is why the solutions must be European with interventions like the one proposed by our country in the international markets for the formation of international FA prices so that its price balances at new, lower and sustainable levels.

It is the duty of the government to boost the disposable income of the citizens, in a socially responsible and targeted way to the most vulnerable. And it does so with all the measures it has adopted. Responsibility and effective targeting are the right combination to shield economic growth and ensure the effective protection of our vulnerable fellow citizens. Without the former, after all, the latter is ultimately impossible.