Center leader: We should already be preparing to cut VAT on energy

Jüri Ratas.
Jüri Ratas. Source: Siim Lõvi /ERR

Preparations should already be underway for cutting VAT on energy, Center Party leader and Riigkogu speaker Jüri Ratas said Saturday, given the ongoing shocks which continued price rises, twinned with overall inflation, are likely to bring through the winter, and not just to the most disadvantaged. Ratas' championing of the policy is at odds with Center's coalition partner, Reform, who eschew cutting VAT on energy.

Writing on his official social media account Saturday, the Riigikogu speaker stated that reduced VAT is the next step, and is one which may be needed in the near future to mitigate the effects of soaring electricity, natural gas and heating prices, meaning preparatory work needs to be done now.

"We can only use it if we are ready now," Ratas said.

An end to the current rise in energy prices is not yet expected, he said. "It is predicted to last all winter, but may subside in the spring of next year. At the same time, a clear and present risk that inflation will continue for longer and affect other prices and wage growth for a longer period is also present," he added.

Ways should be found to offset the effects of very large fluctuations in energy prices, both now, and in the future, he said.

Automatic stabilizers in energy price taxes might be one possibility, and not cutting taxation would be unfair, even despite two other governmental support measures – subsidizing network providers and giving support to low-income households – already in place.

"Reducing the network fee by 50 percent reduced the price level of electricity in October compared with September. However, even with this measure, electricity was still 41.4 percent more expensive than in October of the previous year," Ratas said.

The tax take last year represented 30 percent of overall electricity prices, he added.

"The tax take on electricity sales was actually just as high as a year ago. Since it may take a month or two to alter the tax rate, this needs to be considered now - how much, to whom, and for how long," Ratas went on, noting that overall CPI inflation will compound the problem.

Over half of EU member states have adopted similar measures, Ratas added, mainly temporary measures of the same kinds – tax cuts, support and subsidies.

The rising prices affect the livelihoods of all people and businesses, he added, and even those who have been doing well might see difficulties through the winter.

Finance minister Keit Pentus-Rosimannus has said that cutting VAT on energy would in fact have the opposite effect to that desired, and would harm lower-income demographics more, in part due to the reduced tax take going into state coffers.

Center's Riigikogu group is to meet Ratas next week to discuss things further, he noted in his social media post.

Government and opposition members often use an official Facebook page with which to communicate, and these channels are viewed as an acceptable means of doing so by the Estonian media, which makes regular use of them.

Their use does however lead sometimes to a "race" between politicians, opposition and coalition alike, to be the first to break a piece of information, while Facebook's algorithms may arguably result in the posts being unevenly available to all.

President Alar Karis hit out Friday at poor communication by the government through the pandemic, a complaint often heard from ERR News' readers, including those with businesses in affected sectors.

Ratas was of course referencing energy and not the pandemic directly; the current measures put in place by the government started retroactively at the beginning of October and are to run to the end of March, in other words the coldest, darkest and wettest months of the year.

Electricity prices reached record highs in early October, just as natural gas and vehicle fuel prices were doing much the same.


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Andrew Whyte

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: