Nowhere are fuel prices rising as quickly as in the Netherlands. On Thursday, the national suggested retail price for a liter of Euro95 reached 2.50 euros for the first time. On Friday, the cabinet announced that it wanted to reduce both excise duty and VAT on energy in order to counteract the decline in purchasing power. Gasoline excise duties fall by 17 cents, diesel by 11 cents. The VAT goes from 21 percent to 9 percent. The excise duty on petrol and diesel will fall by 21 percent.
Read also Cabinet wants to ‘dampen’ the decline in purchasing power this year
The measures will cost 2.8 billion euros and will be paid for with ‘extra gas revenues’ and leftover funds from the Brexit Adjustment Reserve, according to the press release from the national government. Earlier, Finance Minister Sigrid Kaag (D66) said he was “very hard” looking for ways to make the price increases “as bearable as possible”.
But why is it that prices are rising so much faster here than elsewhere in Europe? This has to do with taxes: of the 2.50 euros that you now pay for a liter of petrol, 0.83 euros goes to excise duty. 21% VAT is levied on both the basic petrol price and the excise duty. The latter is especially exceptional, says Erik de Vries of NOVE, the trade association for the independent fuel trade. “It’s a tax on tax.”
High tax burden on petrol
In addition, the excise duty would be ‘temporarily’ increased in 1991 by Kok’s quarter (0.25 guilders per litre). But that quarter never disappeared. Moreover, unlike many other countries, the Netherlands has an annual inflation increase in excise duties. That is why nowhere in the EU is the tax burden on petrol as great as here. Purchasing power will fall by 2.5 percent this year, partly due to rising energy prices, according to the CPB on Wednesday.
Tim Schoenmakers of BETA, the trade association of petrol stations, thinks the reduction in excise duty is a good move. He does, however, argue that the VAT reduction on energy should also apply to fuel. “These times call for temporary emergency solutions such as maximizing or lowering the VAT on fuel. If people can no longer afford a full tank, something has to change.”
De Vries of NOVE does not expect that to happen: “That will cost the government money. The question is where that money will come from.” He thinks it is a good time to look at fuel taxation in a broad sense. Because prices go up, government revenues also rise: 21 percent on 2.50 euros per liter is, after all, a lot more than on 1.70 euros per liter, the price of a year ago. “For every 5 cents that prices increase, the government receives more than one cent extra VAT. That is huge on 5.5 billion liters of petrol per year.”
With that extra income, the government can offset the excise duties, says De Vries. “That is about a few cents, and somewhat dampens prices without costing the government a lot of money, unlike a VAT reduction.” Moreover, the measures can also generate money. “You now see more people who refuel abroad. They then also do their shopping there, as a result of which the Netherlands misses out on economic activity and excise duties on alcohol and tobacco. Compensation can put a stop to that cross-border traffic.”
With regard to sustainability, the high taxes are understandable, says Schoenmakers. “But the moment it forces people in border regions to continue driving to a cheaper gas station across the border, it has a contradictory effect.” After all: the faster prices rise, the greater the difference between the Netherlands and neighboring countries.
Wednesday’s CPB estimate states that an attempt at ‘broader compensation’ will soon become ‘very ineffective’: ‘It is not necessary for everyone, and for those who need it, it is just inadequate’. Moreover, the CPB writes, the bill is in fact pushed forward – burdening future generations.
That is also what economics professor Barbara Baarsma says: “If we want to brush away the pain of higher prices for everyone at the moment, the national debt will increase. That price is then paid by future generations. We have to accept that we are all in pain, and that we cannot fully compensate the current generation.”
Support lower incomes
Baarsma calls the cabinet’s proposed measures “unwise” and argues for specific support for lower incomes. “An excise and VAT reduction also compensates wealthier groups, who could well suffer the increase.”
In a response to Wednesday’s CPB estimate, Minister Karien van Gennip (CDA, Social Affairs) said she wanted to help people with low incomes. A spokesman for the Treasury told NRC to look for ‘low-income solutions’. The cabinet now wants to achieve this by offering a minimum contribution of 800 euros for the energy bill.
The other measures in the package are not income-related: the reductions apply to all users. While there are enough instruments to compensate for lower incomes in a more targeted way, says Baarsma. “For example, make use of the existing redistribution resources.” Baarsma mentions a higher tax credit on income tax, higher allowances and higher benefits as options to support the minimum income. “Instead of this package of mainly generic measures.”
A version of this article also appeared in NRC Handelsblad on 12 March 2022
A version of this article also appeared in NRC in the morning of March 12, 2022
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