The federal government and regional executives will look into the sensitive issue of lowering VAT on electricity this Wednesday. The idea: to lower the rate to 6%, against 21% currently to revive the economy.

The discussion began this summer, but differences of opinion emerged among the majority. CD&V, in particular, has expressed reservations.

The Debate Solutions

To objectify the debate, governments asked for an expert report from the National Bank, the Planning Bureau, Eurostat and other organizations. We were able to read it. And obviously, this measure is not a panacea.

• It certainly has advantages, say the experts. First, obviously, a reduction in household energy bills, “If the reduction in VAT on electricity is fully reflected in consumer prices, the price of electricity will drop by 12.4%, indicates the document. He also notes that the measure will increase the purchasing power of the lowest incomes. It will also promote consumption and business investment.
• Another positive point: job creation. But the impact is more limited than expected. The government was counting on more than 10,000 new jobs. The report tempers its ardor: “Employment is expected to increase by more than 1,000 units in 2014 and gain around 8,000 units in the medium term.”

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The report also notes a positive effect for governments: a drop in electricity prices will delay the moment when the pivot index is crossed. This means that salary increases due to automatic indexation will be postponed. “The drop in the price index will be 0.39% while that of the health index (used for salaries, editor’s note) will be 0.42%.” You can also calculate sales tax  there.

• So much for the arguments considered positive by the public authorities. But experts also point to pitfalls. “The public deficit would be increased by the measure”, say the experts, who cite a maximum deterioration of 0.14% of gross domestic product over the period 2015-2018 . To current GDP, this represents a cost of 518 million euros for the budget. And that’s not all: the public debt would also be affected: “it would thus swell by the equivalent of 0.57% of GDP in the medium term. ” When we know the current efforts to reduce the debt below 100% of GDP, we measure the importance of this argument against.

And that’s not all. Experts also evoke an ecological problem. The fall in the price of electricity will cause an increase in consumption and economic activity. Consequence: CO2 emissions will rise. “The increase in emissions would be of the order of 0.11% in the short term (increase of 130,000 tons of CO2 equivalent) and 0.62% in the medium term (increase of more than 700,000 tons).”

Conclusion

Supposed to clarify the debate, the study does not in any case give reasons either to the supporters of the reduction in VAT, at the head of which we find the SP.A, or to its detractors, which we find at the CD&V. The debate therefore risks picking up where its protagonists left off.