Finance minister: Cutting VAT on energy bills would be futile exercise

Keit Pentus-Rosimannus.
Keit Pentus-Rosimannus. Source: Priit Mürk/ERR

Cutting VAT on energy would make a mockery of the public, finance minister Keit Pentus-Rosimannus (Reform) says. Other more long-lasting measures should be put in place than those which have already been initiated in response to record electricity, natural gas, district heating and also vehicle fuel prices – hinting at a continued split between Reform and Center, the two coalition partners, on the issue.

The minister said that the change would only make what for her would be negligible changes to an energy, taking the time to post about it on her Facebook page that: "For example, on a bill coming to €75 the difference would be less than €7.

"The difference would be even lower for smaller bills, and while higher for larger consumers, [the difference[ would still be around a tenth," she went on, with reference to an Isamaa bill which would, if it passed the Riigikogu, cut VAT from 20 percent to 9 percent, on electricity, natural gas and district heating.

The move would be a short term one and the problem requires a more long-lasting solution, Pentus-Rosimannus continued in her social media post.

."The main bottleneck in our region is the lack of production capacity. We can distribute the entirety of the budget for the next five years as support, but until the root cause is overlooked, the situation will not improve," Pentus-Rosimannus said.

"This area is led by the minister of economic affairs, who is likely swamped with work, and we will probably hear about the proposals soon," she added.

Pentus-Rosimannus said she sees the planned Gulf of Riga wind farm as one other solution for accelerating the creation of renewable energy capacities and thus lowering prices – a development which would require the resolution of legal difficulties.

"Ending the embarrassing litigation between two state-owned companies, Elering and Eesti Energia, would provide an opportunity to start with the Tootsi wind farm," she added.

A program to support alternative production capacities and small-scale production solutions should be implemented quickly, and an energy-saving investment program, including rapid investment in insulation and energy efficiency, is also needed, the minister said.

A support measure aimed at helping low-income households and already in place is not going to be effective enough, the minister added.

"The worst thing is when we create a seeming situation where something has seemingly been done, tax money is burning up as a result, but the impact on people in need is very small," Pentus-Rosimannus wrote, referring to one of two measures issued so far amid soaring energy prices – one in effect Center's policy and the other, providing 50 percent of the network fee as compensation to suppliers, Reform's policy.

Reform, whose ratings have been tanking for many weeks now, are in effect isolated on the VAT issue – not only does their coalition partner, Center, support it, but so too does Isamaa – which as noted tabled the recent bill – and two otherwise unhappy bedfellows, the Conservative People's Party of Estonia (EKRE), and the Social Democratic Party (SDE).

Electricity prices per MWh have exceeded the €460-mark this week, though the feared €1,000 per MWh level has yet to materialize.


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Editor: Andrew Whyte

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