The measure was announced by German Chancellor Olaf Scholz on Thursday 18 August in order to counteract runaway inflation.
This could reinvigorate the French debate on VAT on energy. In view of rising prices, the federal government announced on Thursday that it would temporarily reduce VAT on gas from 19% to 7%. The reduced tax rate applies at least until the end of March 2024. “We expect that companies will pass this reduction on to their customers 100 percent,” emphasized Federal Chancellor Olaf Scholz. Rising prices are “a great burden for many people,” he admitted.
On Tuesday, Berlin allowed gas suppliers to increase their tariffs for private individuals and companies by 2.4 cents per kilowatt hour. Including VAT, that’s around 600 euros more per year for an average household with two children and a consumption of 20,000 kWh. The government wanted to exempt households entirely from VAT, but the European Commission opposed it.
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However, the reduced VAT rate applies to the entire invoice, not just the increase approved earlier in the week. This more than compensates for the additional work involved. Finally, Olaf Scholz reiterated the promise of an aid package “to reduce the pressure on private individuals and companies”.
No VAT reduction in France
In France, the executive has refused to cut VAT on energy since the crisis began, despite calls from some opposition parties, including the National Rally since the presidential campaign. “We must reduce VAT on energy, fuel, gas, electricity and heating oil from 20% to 5.5%,” Marine Le Pen demanded at the parliamentary elections. Such a measure would cost the state 10.3 billion euros, the Montaigne Institute calculated.
The Ministry of Economic Affairs also argues that a reduction in VAT would quickly be canceled out by a renewed increase in prices at the pump. And recalls that the “tariff protection” introduced in September 2021 protects the French from the increase in electricity and gas prices.