Prime Minister Kaja Kallas (Reform) pushed back on coalition partner Center Party's idea to lower VAT on energy and pointed out four counterarguments for why it would not be the best idea.
"Lowering VAT on electricity comes with several issues. The first issue is a requirement to amend legislation, which will take at least three months. This would not help the people with difficulties currently," Kallas said on Thursday.
Secondly, a VAT reduction would only cover 10 percent of the recent electricity inflation. "Thirdly, it would be directed all and not just those that are really in trouble. If we give a little to everyone, we cannot assist those really in need," the prime minister added.
Her final counterargument was that lowering energy prices for all would not help in terms of energy saving, meaning the actual effect of the reduction would be very light.
Responding to a question about why Center politicians are clamoring for a reduction on energy VAT, Kallas said: "Because it sounds good politically and Center wants to show what they are standing for. Our focus and desire is to help those that are in serious need, we will direct aid to the 325,000 families, 600,000 people, that have difficulties managing the price increases."
Center's Riigikogu group sent out a press release on Wednesday evening, in which they stated the party will propose lowering the VAT on electricity, gas and heating from 20 percent to 9 percent from January to April. In addition, Center is also applying for a retroactive (from October 1 2021) gas excise rate for intensive gas consumers.
"Maintaining the energy VAT level would increase inflation even further and the state would be the only winner, increasing its income from the pockets of its population. The question is not just households, but the economy as a whole - a sharp price increase for energy carriers affects jobs, costs on transport and foodstuffs," Center Party Riigikogu group chair Jaanus Karilaid said.
"Supportive solutions must be implemented in parallel to manage the crisis effectively. We are working so the measures that support Estonian people would be implemented. We hope Reform Party understands the seriousness of the situation," Karilaid noted.
Riigikogu opposition Isamaa Party, the Social Democratic Party and the Conservative People's Party of Estonia (EKRE) have also expressed support for a reduction on energy VAT.
Editor: Kristjan Kallaste