Fuel crisis: Italy urged to cut tax as petrol prices reach record high

With fuel prices in Italy surging to new highs of over €2 euros a litre, business and consumer groups said the government must slash VAT to keep the country moving.

Fuel crisis: Italy urged to cut tax as petrol prices reach record high
Filling up your tank in Italy is becomig prohibitively expensive as the country sees the highest fuel prices on record in early March 2022. Photo by MIGUEL MEDINA / AFP

The average price at the pump in Italy is now at an average of €2.2 per litre for self-service petrol/gasoline and €2.3 for diesel, according to Italian consumer watchdog Codacons.

This means the price of petrol has risen by 39 percent in a year, and diesel prices have risen by 51 percent, the association said.

Italy’s fuel prices are the highest in Europe after the Netherlands, according to analysis by consumer finance website

READ ALSO: How to save money on your fuel in Italy

Although fuel prices have been on an upward trend in Italy since May 2021, petrol and gas prices have skyrocketed since Russia’s invasion of Ukraine: Russia is the world’s third-largest oil producer and second-largest exporter..

But this doesn’t fully account for the price rises. Other factors affecting the price you’ll pay at the pump in Italy include the 22 percent VAT rate, plus excise duty (a tax on the production and consumption of goods).

Codacons said taxation has now reached 55.3 percent on every litre of petrol and 51.8 percent on diesel.

Representatives of Italy’s business and consumer groups have urged the Italian government to provide financial help to prevent further price rises, as some sectors including hauliers say they can’t afford to operate.

Industry association Confindustria on Monday urged the government to do more to offset the price rises.

“The costs of petrol and diesel at the distributor have reached an all-time high in recent days,” President of Confindustria in the southern Italian city of Brindisi, Gabriele Menotti Lippolis said in a statement to the press.

He said fuel distributors were benefiting from rising prices, “but also the State, which is taking higher tax revenues thanks to the VAT paid on fuel prices.”

“In the last week alone, the extra revenue gained [from VAT] is up by approximately 45 million euros compared to in the second week of February.”

He urged the government to use this money “to support families and businesses” while freezing VAT on fuel “for a few months to immediately reduce prices”.

Though the government hasn’t indicated how it plans to address the increases, Italy’s Minister for the Ecological Transition meanwhile blamed the price surge on speculation.

The fuel price rises “are a colossal swindle against Italian companies and citizens,” Minister Roberto Cingolani told Sky TG 24 news on Friday.

“There is no technical reason for these increases,” he said, describing it as “a speculative spiral from which a few profit”.

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How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.