9.3
8.524 reviews
English
EN
The EU wants to give companies a temporary lease compensate for the increase in energy prices. Various sectors that consume a lot of energy can claim compensation of up to €400,000. Companies in agriculture and fisheries can receive up to €35,000. With this measure, the EU is trying to accommodate companies that are at risk of getting into trouble due to high oil and gas prices. It sounds like a nice gesture, but this measure will not solve the underlying problems. Here are three reasons why this is a bad plan.
It is understandable that European governments want to do something to accommodate companies affected by the sanctions. Some sectors, such as greenhouse horticulture, are no longer profitable due to the high gas prices of recent weeks. But other sectors are also suffering from high energy prices, such as transport companies and industry. Energy suppliers are also struggling with the high prices, as they have little certainty about what prices will do in the coming month. This is despite the fact that they are obliged to deliver at a certain price.
The problem with the proposed compensation scheme is that it is very difficult to compensate all companies equally and that arbitrariness is easily lurking. Governments will have to draw up conditions for the support package, which means that some companies will fall by the wayside. Handing out one-off money to companies creates arbitrariness and thus distorts competition. Not all companies will receive compensation commensurate with the additional costs resulting from high energy prices.
This is because the compensation scheme only looks at the energy bill, while other raw materials have also become more expensive. Consider, for example, the prices of steel and other building materials, which are causing a lot of problems for companies in other sectors. Compensating only for high energy prices does not do justice to sectors that have been affected in other ways by the war or sanctions.
It's often said that you can't eat gold, but of course that also applies to money. European countries can hand out money to compensate companies, but that does not solve a physical scarcity of certain raw materials. If Europe decides to block the import of Russian oil and oil products, it could result in a shortage of fuel. You can give companies more money to buy energy and fuel, but if it is rationed, it doesn't help anyone. With extra money, there is not suddenly more fuel coming out of the pump and there is not suddenly more sunflower oil on the shelves.
This brings us to the next drawback. If certain raw materials are scarce and the government decides to throw more money at them, the logical consequence is that the prices of those raw materials will continue to rise. Part of the compensation that the EU wants to give to companies will flow abroad in the form of higher energy prices. In this case, largely to Russia. Europe is a net importer of oil and gas and Russia is an important supplier for this. The price-pushing effect of the support measures is also detrimental to people who do not receive compensation. They will pay more for energy, without getting anything in return. From a social point of view, this is very undesirable.
Under these plans, the countries of the European Union can pay out up to €50 million to help companies. The exact amounts are not yet known, but it does mean that governments will borrow even more money and allow the already high national debt to rise even further. In this way, the bill is not passed on to the neighbour, but to the future. Now that interest rates are so low, that doesn't seem to be a problem, but we have seen a Strong upward trend. It is therefore irresponsible to collectively borrow even more money to compensate for the setbacks of a few sectors.
The high energy bills and expensive fuel are not only the result of a rising price of oil and gas. The government is also benefiting greatly from higher energy prices. Nowhere in the European Union is petrol taxed as heavily as in the Netherlands. For example, about two-thirds of the price consists of taxes. In May 2020, a litre of petrol cost €1.46, of which only €1.06 is made up of taxes. At the time, a litre of diesel cost €1.20, of which €0.72 consists of taxes. Part of this consists of excise duty and part is VAT.
The Netherlands leads the way with tax on petrol
The situation in the Netherlands is not much better for natural gas. Despite the fact that we have our own gas fields in Groningen and under the Wadden Sea, the gas price in our country is much higher than in other European countries. More than half of the price consumers pay is spent on taxes. So the solution is very simple. If we want to compensate consumers and businesses fairly, we need to drastically reduce taxes on fuel and natural gas in the short term. This is more effective than collecting taxes and then selectively distributing that money to certain companies and sectors. The government has already initiated this by reducing excise duties on petrol, diesel and LPG. lower, but the question is whether that is enough. A reduction in the tax on natural gas could also help certain sectors.
The Netherlands leads the way with tax on natural gas
This contribution comes from Geotrendlines
Have a look at us YouTube channel
On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
