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Economy

Georgiadis: “Reducing VAT and Fuel Tax Will Not Lower Prices”

February 17, 2022

ATHENS – Reducing the rates of Value Added Tax or Special Consumption Tax on fuels will not necessarily lead to lower prices for consumers, Development and Investments Minister Adonis Georgiadis asserted on Thursday, speaking to the ERT public radio station First Programme.

“If you lower VAT, it does not mean the prices of products are automatically lowered, or that when you reduce the Special Consumption Tax on fuel, there is an automatic reduction of fuel prices. That has never been the case until now,” he said.

On the contrary, he added, “if we have a reduction of VAT for a series of products, it is certain that the reduction will not be passed on to the final prices.”

He pointed out that the past reductions of VAT on the restaurant/hospitality sector did not have an equivalent impact on prices, just as VAT increases had not increased them by the same amount: “Businesses tend to either absorb a part of the loss to avoid losing their customers or, in an easier time, try to make good their losses.”

At the same time, the horizontal measures would have a major fiscal cost that would jeopardise the economy, because higher inflation would create pressure on central banks to increase interest rates and this would increase borrowing rates, he said.

This would be especially dangerous for Greece with its high public debt, Georgiadis noted, as its interest rates were already high in comparison with other countries and this would have a knock-on effect on things like mortgages and consumer credit.

The government was instead planning a policy to support those most vulnerable to the prices increases, within the margins of what the public purse could afford, he said.

Pointing out that the problem was global, he also highlighted the fact that the annual inflation figure for Greece was misleading, since it followed a period of the deepest deflation in the country’s history, in January 2021. A comparison on a monthly basis, he added, from December 2021 to January 2022, showed that inflation had actually declined by 0.3 pct, showing that the rest of the market apart from fuels had “tried to contain things”.

Regarding the government’s strategy with respect to the market, Georgiadis said, this would not change “because it is successful” and a reason why “we remain among the countries with the lowest inflation in Europe.”

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