The coalition parties, Reform and Center, reached agreement in principle on measures to alleviate soaring electricity, natural gas and household heating inflation. The government plans to halve the electricity network fee until March 2022 and provide support to low-income households, though still needs confirmation from the competition authority watchdog that it can go ahead.
Center Party leader Juri Ratas said: “It is our firm desire to compensate low-income people and households for the rise in prices on the part of energy suppliers, namely household heating, electricity and gas.”
No agreement was reached on another proposal, which had been raised, to reduce the VAT rate on energy fees, currently 20%, though Ratas said he was in favor of doing so.
“I personally believe that the most reasonable thing to do would be to cut VAT on heating, electricity and also gas. There is no agreement on this in the coalition today however,” Ratas said.
The government plans to provide support to those on low incomes from funds – estimated at over EUR 200 million for this year – derived from the trading of Estonia’s CO2 quota allowances and also from the government’s own reserve.
The relief measures come in two parts. The first is reimbursing half of the energy networks’ fees from October to March, the coldest months. The second is paying additional support to low-income households via local governments. The move should affect around 72,000 households.
The government also requires confirmation from the Competition Authority (Konkurentsiamet) that the measures are viable in their current form, before taking its final decision.
Reducing VAT would likely cost the state purse tens of millions of euros, at a time when the 2022 state budget bill is being debated.
The two coalition partners traditionally have very different approaches to macroeconomics, with Reform favoring austerity and low taxation, and Center tending to lean more towards borrowing to fund public spending.
Electricity and natural gas prices have reached record levels in recent weeks and look set to continue to rise. Overall CPI inflation is running at a high also, while fuel prices have also exceeded previous figures.
Household heating in Narva and several other towns is provided via a by-product from local power stations. Hot water is piped in from the plant; many of them are burning woody biomass, which has also been seeing inflation, instead of shale oil, at present. (ERR/Business World Magazine)
