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Reform opposed to cutting VAT on electricity

Energy.
Energy. Source: Ken Mürk/ERR

Minister of Public Administration Jaak Aab (Center) says that as one possibility to reduce electricity prices, the coalition had discussed cutting value-added tax on electricity, but the Reform Party doesn't agree with the policy. If prices continue to rise and other measures don't work, it will be necessary to turn back to that discussion, he says.

Speaker of the parliament and Center Party chair Jüri Ratas says a temporary cut in VAT on district heating, electricity and natural gas is a necessary third step to mitigate the impact of the increase in energy prices to consumers, on top of the subsidy to network providers and support to low-income households already rolled out.

Aab stressed that price increase was painful not only for Estonia but for the whole world. "It's a result of the coronavirus, where the main issue was whether energy carriers were producing less, and now, suddenly demand increased," Aab told Vikerradio's current affairs show "Uudis+" Wednesday.

Aab noted that the government hadn't started thinking of a price rise just now, but that the fundamental decisions were agreed on a month ago already.

As noted government had decided to pay network operators a subsidy, which comes to €90 million from October until March, to reduce the network fees.

Poorer families will get compensation for bills via the local governments.

Based on their bills, the price increase will be compensated from September, and the compensation can be applied for from December.

"Unfortunately, these procedures take time. Because we're talking about a subsidy of a social nature, then local governments are paying it, the state is allocating money for it, it's a complicated system, but if we want to help less insured families, then this is how it's possible to do it," Aab said.

Aab noted regarding other measures that the state's budget is not an endless hole and even though, as many families as possible are going to be helped, but this money needs to come from somewhere.

"Whether we need to make additional decisions, I couldn't tell. There have been talks about a turnover tax," Aab said.

For reducing VAT on electricity, natural gas and district heat, it is difficult to use the money from CO2 surpluses, however, and lower network charges were the first quick fix, the minister said.

"Reducing the VAT would take months - first, the law needs to proceed, then make corresponding information technology solutions, not only the state but the entrepreneurs as well. It would have taken two to three months and this is why we didn't decide like that. Should it be done moving forward? It depends largely on how the prices are increasing and if additional measures are needed," Aab continued.

"I support that," Aab said.

"The Minister of Finance is the first one who has to count the money. We have a lot of necessities to allocate the money to in a crisis situation. Reducing the turnover tax is around €150 million, for that, a supplementary budget needs to be drawn up," Aab said.

The reduction of the turnover tax has been discussed in the coalition council and, Aab said that the coalition partner, the Reform Party, did not support it. "We looked for different solutions and found two faster ones," he said.

"Will there be any further decisions, we have to look at the situation, how acute it is. And the whole world is in trouble, not just Estonia," the minister said.

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Editor: Roberta Vaino

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