Fuel Prices: A Study Challenges the VAT Cut or Price Cap, Called ‘Fictitious Protection’

“Undesirable” proposals. In a study published on Wednesday, the Terra Nova think tank delivers its verdict on the reduction in VAT on fuels, advocated by the National Rally, or the price freeze, defended by La France insoumise. The think tank, close to the Socialist Party and which defines itself as “progressive”, assures that these two measures represent “false protection”.

According to the study, “general and lasting tax cuts constitute costly, poorly targeted responses,” according to the study. The price of diesel reached a record in France at 2.41 euros per liter on average on September 20. Since then, the effects of the release of part of the strategic diesel stocks at the beginning of November have been felt: the price of this fuel has decreased and reached 2.20 euros per liter on average on November 9.

The reduction in VAT, an “error in diagnosis” Wanting to lower VAT to 5.5%, in addition to the fact that this “comes up against European law” (which provides for a floor of 15%), “is due to an error in diagnosis” because the taxation of fuels is partly fixed, with the excise (61 cents per liter for diesel and 67 cents for SP95-E10), details the study. So “the share of taxation in the price falls as the liter becomes more expensive,” explains the think tank. “It exceeded half the price of diesel” before the war “and only represented around 42% at the beginning of October.”

The increase mainly comes from elsewhere: the closure of the Strait of Hormuz, the damage suffered by Gulf refineries and the pressure exerted by Ukraine on Russian refineries are causing tensions on refining, which “would explain around 60% of the increase in the prices of petroleum products in France between February and August”, according to Terra Nova. Reducing VAT “would leave diesel above 2 euros”, underlines the think tank, and would cost around 6 billion euros per year for fuels, or even 12 to 17 billion euros if the reduction extended to all energies. Blocking prices, the risk of shortage As for the proposal from La France insoumise (LFI) to block prices at 1.70 euros per liter?

This would constitute “a shortage strategy”, notes Terra Nova. “A capped price below the European market would encourage foreign suppliers to deliver elsewhere and refiners based in France to export their production rather than selling it at an administered price,” explains the think tank. The government's direction, which favors targeted aid, "is the right one", he judges.

But the study prefers “automatic support indexed to the price at the pump”, rather than the “fuel” bonus, paid by employers, or the 100 euro compensation intended for the 5.5 million low-income workers who request it.

Machine-translated from French