Reducing the rates of Value Added Tax or Special Consumption Tax on fuels will not necessarily lead to lower prices for consumers, Development and Investments Minister Adonis Georgiadis said on Thursday.
Speaking to public radio ERT 1 public radio station Georgiadis said “if you lower VAT, it does not mean the prices of products are automatically lowered, or that when you reduce the Special Consumption Tax on fuel, there is an automatic reduction of fuel prices. That has never been the case until now.”
On the contrary, he added, “if we have a reduction of VAT for a series of products, it is certain that the reduction will not be passed on to the final prices.”
He pointed out that the past reductions of VAT on the restaurant/hospitality sector did not have an equivalent impact on prices, just as VAT increases had not increased them by the same amount.
“Businesses tend to either absorb a part of the loss to avoid losing their customers or, in an easier time, try to make good their losses,” the minister added.
He defended the no-reduction policy saying that the horizontal measures would have a major fiscal cost that would jeopardize the economy, because higher inflation would create pressure on central banks to increase interest rates and this would increase borrowing rates.
This would be especially dangerous for Greece with its high public debt, Georgiadis noted, as its interest rates were already high in comparison with other countries and this would have a knock-on effect on things like mortgages and consumer credit.
Instead, the government was planning to support those most vulnerable to the prices increases, within the margins of what the public purse could afford, he said.
He pointed out that the problem was global, he also highlighted the fact that the annual inflation figure for Greece was misleading, since it followed a period of the deepest deflation in the country’s history, in January 2021.
A comparison on a monthly basis, he added, from December 2021 to January 2022, showed that inflation had actually declined by 0.3 pct, showing that the rest of the market apart from fuels had “tried to contain things.”
PS Greek Logic & Statistics: Beat that!
I thought there were anti profiteering laws here in Greece that could be used to stop the oil companies benefitting from a VAT reduction.
what absolute nonsense .If basic prices have increased then a reduced VAT rate on the increased price will produce at least the same or higher fiscal revenue ! Possibly they are right that reductions may not be passed on but they could easily legislate for this on electricity /petrol/diesel /gas costs for a start
If the price of a product doubles and the VAT rate remains the same then the government receives twice as much , so they can afford to reduce the Vat rate and still receive more revenue than they did a year ago and to say otherwise is nonsense .
Probably they are right that an overall reduction may not be passed on but it would be very easy to reduce the rate on electricity.oil/diesl/petrol/gas and legislate that savings be passed on .
What his comments demonstrate is that energy is not a free market in Greece but operates as a cartel. If there was a free market some suppliers would pass on the VAT reduction to their customers in lower prices, because that could capture them a bigger market share. This is especially true in a market where prices have gone up so much that people are already cutting the amount they consume as much as they possibly can.