Price shock for consumers: Bofinger: “Have value added tax on energy”

Price shock for consumers
Bofinger: “Halve VAT on energy”

Many citizens suffer from the fact that they are currently paying much more for gas, heating oil or electricity. The economist and longtime economist Bofinger accuses the federal government of ignoring people’s fears of inflation. Instead of earning money from the high energy costs, it should relieve households.

In view of the rising inflation, Peter Bofinger, who has been doing business for many years, is appealing for the value-added tax on gas and heating oil to be halved to ten percent. “The government must do more to counteract the high energy prices,” Bofinger told the Süddeutsche Zeitung. The price swings put a “massive” burden on those on lower incomes and also on the middle class.

“The price of gas has doubled, heating oil costs around 60 percent more than a year ago,” said the economist. If the state halved the VAT on gas and heating oil to 10 percent, it would have almost the same income as before. At the same time, households would be relieved of the gas bill by 270 euros a year. The price increase for electricity and petrol is somewhat lower, so a temporary reduction to 16 percent would make sense. Instead of helping, the federal government is ignoring Germans’ concerns about inflation, criticized the economist. “It cannot be that the state earns money from the high energy prices!”

All institutions that professionally prepare inflation forecasts were “completely wrong” with their forecasts. In March of last year, the German Council of Experts predicted 2.1 percent inflation. Bofinger says it’s “logical” that inflation has been greatly underestimated. “Because it comes mainly from the higher energy prices, which were not foreseeable.”

“Communication of the ECB could be improved”

Bofinger also criticizes how the European Central Bank (ECB) reacts to inflation. The ECB is right not to raise interest rates this year. “But ECB boss Christine Lagarde is selling it completely wrong. No citizen thinks of 2024.”

The communication of the ECB is clearly in need of improvement, the economist continued. “No one understands that. Ms. Lagarde would have to say: As soon as the long-term inflation forecast rises above two percent, we will raise interest rates. That would send the signal to the ECB that it would act if necessary.”

On Wednesday, the Federal Statistical Office reported a 5.3 percent increase in consumer prices in December compared to the previous year. Inflation is likely to continue this year, as indicated by producer prices for December. Expensive energy has driven the prices for commercial products in Germany 24.2 percent above the previous year’s value. According to the authority, there has never been such an increase in the Federal Republic.

DIW boss demands energy money for low earners

In view of high energy prices, the President of the German Institute for Economic Research (DIW), Marcel Fratzscher, financial aid from the government, especially for the needy. “It is the task of politics to support people with low incomes and the households most affected by the exploding energy prices through direct payments of energy money,” said Fratzscher of the “Rheinische Post”.

The coronavirus pandemic and the conflict with Russia mean that price developments continue to be difficult to predict. “In the short term, nobody in Germany will be able to do anything about it, neither politicians nor the central bank.”

The rising electricity and energy prices have put the traffic light government under pressure. In January, the government still wants to decide on concrete help for recipients of housing benefit. According to the plan, there should be “a one-off increase in heating costs in the short term”.

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