A month later, the “aggressive” reduction in the tax on petroleum products has already been completely consumed by the rise in the prices of raw materials. At the beginning of May, the tax fell by around 15 cents per litre, but comparing the evolution of prices since then we see that diesel is 5 cents more expensive and gasoline is up an impressive 29 cents per literconsidering the average price paid (with discounts) collected by the General Directorate of Energy and Geology (DGEG).

However, it is on the side of diesel users that there is greater pressure on the Government to take new measures to contain the impact of rising prices. After increases of 11 cents per liter this week, the association of freight carriers, ANTRAM, has already met with the Government to demand professional diesel.

The fishermen of Viana do Castelo also ask for the same support for the gasoline boats that were made available for diesel. When the energy crisis broke out, the Government approved a refund of 30 cents per liter of diesel used in the transport of goods, which was also applied to collective and individual passenger transport. This support for a period of three months has already been or is being paid. Y the renewal of this compensation for a longer period of time may be one of the measures on the table.

But to return to a universal response to the increase in fuel prices, the Government has less room today than when the spiral of prices worsened as a result of the war in Ukraine. Mainly because it is already evident, as António Costa acknowledged, that this is not a temporary situation, at least in the current context of the conflict.

António Costa says that fuel prices will only drop “when the war is over”

Lowering VAT to the intermediate rate does not happen in Brussels

The first measure that António Costa wanted to implement, the reduction of VAT to the intermediate rate of 13%, did not pass the scrutiny of the European Commission. Although there is no official answer, neither from the Ministry of Finance nor from the competition services in Brussels, an official source from DG Comp referred the observer’s question to a letter sent to the Member States by the Commissioner for the Economy, Paolo Gentiloni, still in force. of April where it clarifies the European norms and the principles that the countries must follow.

The new VAT regime (which entered into force in April) allows reduced rates (minimum 5%) to be applied to natural gas, electricity and heating oil. Reduced rates are also available to apply to more energy efficient solar panels and heating equipment (including zero rate for solar panels). Member States may not have more than two reduced rates. Fuels for road use cannot benefit from reduced rates”.

The lowering of the oil tax that is almost at the limit and ends in July

As an alternative, the Government approved a reduction in the oil tax rates on gasoline and diesel to a level equivalent to that which would result from a change in VAT from 23% to 13%. This measure allowed prices to be lowered by around 10 cents per liter at the beginning of May, replacing the return scheme with Autobono, which was only available to those registered on the platform (more than three million in April).

With an estimated cost of 80 million euros, the lowering of the oil tax is temporary and was approved (and budgeted) for two months, that is, until the end of June. And in this framework, there are two dilemmas that the Government has to decide. Will it prolong the temporary drop of the ISP? And will the tax be lowered further, considering that the effect of the initial reduction has already been absorbed by the rise in refined products?

To resolve these dilemmas, the Government will have to weigh a set of variables. The first is the minimum limit of the oil tax allowed by the European Union and that is about to be reached in diesel. An exception has already been requested to lower the tax beyond that threshold. Other factors to consider include the effectiveness of the tax cut, which has been shown to be insufficient to offset the rise in prices, and the magnitude of the loss in tax revenue.

If the data up to April point to a recovery in oil tax collection compared to last year and even in relation to 2019, this situation will change in May. March and April were months of strong fuel consumption, driven by Easter and festive trips, and the introduction of petroleum derivatives for consumption was anticipated, which increased tax collection. This situation will be reversed in May.

In addition to the immediate fiscal loss, the Executive will also have to decide if it wants to continue subsidizing fuel for road use, giving signals contrary to the policy of accelerating the energy transition contained in the Government program. Especially when it begins to be evident that this price increase is not going to be temporary. Prices may stop rising, but they are unlikely to return to the pre-crisis level in Ukraine.

User support. Support everyone or only the most affected sectors

In addition to, or in addition to the tax relief, the Executive may pay subsidies or reimbursements to fuel users. This was, in fact, the first solution approved last year with the creation of the Autobono from the system developed to refund VAT on purchases in the sectors most affected by the pandemic. However, this modality should not be resumed, at least in the way it worked between November and April.

The contract that supported the Autobono program that ensured the reimbursement of expenses incurred at service stations -5 euros per month that rose to 20 euros in March and April- has ended. The award of this program was made by direct agreement with Salt Pay, the company responsible for the IVaucher platform, for a period of 5 months, effective as of November last year, which will end in March. The program was expanded in April, but was suspended after the tax on petroleum products was reduced in May. To resume it, a new direct adjustment would have to be made.

Along with the technical solution that will be used for these compensations, the Executive must also evaluate whether to continue promoting a universal cost containment policy that benefits all users or whether it will focus support on the economic sectors most exposed to the impact of the increase. in fuels. such as transportation, agriculture, and fishing. Especially since these activities also have a greater effect on the chain on the rest of the economy and on the prices of products and services.