Critics Speak Out Against Reduced Gas Tax: Policy Driven by Empty Can Mentality
**"Let's dive into the latest political turmoil," chatted Jens Südekum, a Scientific Advisory Board member of the Federal Ministry of Economics, to Reuters yesterday. "We're seeing a frustrating trend of one-size-fits-all politics," he grumbled. "This move steers us in the wrong direction," he warned. "What we require is a policy that empowers economic signals and offers aid precisely where it's critical: to those with modest-to-average incomes," said the Düsseldorf prof. "Halving VAT on gas misses the mark." It'll also mostly benefit high earners, a group the government can't currently assist, and stifles incentives to conserve energy. "So, it achieves the exact opposite of what's truly required," Südekum pointed out.
Scholz had earlier announced he'd chop VAT on gas from 19 to 7 percent by March 2024 to help citizens. Insiders claim this change kicks off in October. "This will nudge inflation down by roughly 0.3 percentage points," said Jörg Krämer, Commerzbank's chief economist. "For October and November, we no longer anticipate inflation to significantly exceed nine percent, but will hover around that mark." Though it's positive that the government doesn't aim to profit from the gas surcharge, said Krämer, "a more robust incentive to save gas would've resulted from helping citizens not through the gas price, but through direct payments."
Michael Holstein, DZ Bank's chief economist, echoes this sentiment. "Financial support for citizens is a wallet-saver and hence beneficial for the economy," said Holstein. "However, expensive energy costs should prompt saving instead of being mitigated or capped by the government," he added. This tactic echoes the pricy fuel discount, which ultimately offered insufficient relief. It'd be wiser to help families with lower incomes directly and specifically. "That's what the social market economy's for, particularly during crises."
As for the possible criticisms and alternatives to cutting VAT on gas, here's the lowdown:
- Long-term vs. Short-term Benefits: Whilst reducing VAT on gas may offer immediate relief, it may neglect long-term energy affordability problems and encourage needless consumption without promoting sustainable energy alternatives.
- Environmental Concerns: Trimming VAT on fossil fuels could discourage the shift towards renewable energy resources, exacerbating environmental woes.
- Economic Efficiency: VAT decreases might not be the most effective method to support consumers, as they could induce heightened gas demand without significantly lessening prices.
On the flip side, here are a few alternatives to ponder:
- Direct Aid: Implementing direct aid to households with lower incomes or those most impacted by energy price rises could be more focused and productive.
- Investment in Renewables: Boosting investment in renewable energy sources could help us break free from fossil fuels, potentially decreasing energy costs over the long term.
- Energy Efficiency Measures: Advocating energy-efficient technologies and habits could reduce energy consumption overall, providing relief without relying solely on price adjustments.
- Regulatory Actions: Implementing price caps or regulating energy markets more stringently could ensure consumers are shielded from price volatility. These alternatives seek to promote sustainability and help obtain relief more holistically. However, direct criticisms and alternatives from German economists would need to be sourced from those economists themselves.
"Michael Holstein, DZ Bank's chief economist, suggests that financial support for citizens is beneficial for the economy, given its role as a wallet-saver," said Holstein. However, expensive energy costs should ideally prompt saving instead of being mitigated or capped by the government, he added. On the other hand, Jörg Krämer, Commerzbank's chief economist, expressed doubt about the long-term benefits of halving VAT on gas, suggesting that direct aid to households with lower incomes could be more focused and productive.
