The European response to the inflation crisis

The European response to the inflation crisis

Germany is the European country of the large group that leads aid to combat inflation. Ahead of France, Italy or Spain. It is also the country that suffers the most from the increase in energy prices due to its high dependence on the Russian market. Among the measures implemented, the deflation of the income tax that benefits more than 40 million taxpayers stands out.

In other countries, such as France, they have implemented measures such as a check for taxpayers who use firewood to heat themselves. In Italy, the government has also created specific aid for low-income taxpayers.


Deflation of personal income tax and other tax aid

The parties of the tripartite government coalition in Germany agreed this autumn on a package – the third – of aid of 65,000 million euros. Germany will temporarily lower fuel prices, as part of a series of measures to offset the sharp rise in energy prices. The Executive agreed to subsidize the price of gasoline and diesel by 30 and 15 cents respectively until the end of the year.

In addition, and also for three months, monthly tickets for suburban public transport have been offered for a value of 9 euros, but the Government of Olaf Scholz has announced that this measure will be extended, although at a higher price. To finance the new amount of the ticket, which would oscillate between 49 and 69 euros, the central government, which must now reach an agreement with the federated states, will put 1,500 million euros.

Other measures included in this third phase of aid include extending the energy bonus of 300 euros in a single payment also to retirees and 200 euros to students.

Also more people will receive help to pay the rent, which the German government already subsidizes for low-income people. The circle of beneficiaries will expand from the current 640,000 people to two million. Households also receive a second bonus money for heating. Specifically, 415 euros if the household belongs to one person. Of 540 euros if it is two people and for each more person who lives there, another 100 additional euros. Then, that aid will be definitively integrated into the general rental subsidy.

Berlin has decided to deflate personal income tax, so that some 48 million taxpayers will not have to pay higher tax rates due to inflation. Likewise, if German employers want to financially support their employees due to high energy prices, these payments must remain free of taxes and duties up to an amount of 3,000 euros.


Proud of aggressive intervention

The French authorities, led by President Macron, always boast of being one of the most interventionist countries to cushion the effects of inflation, which stood at 6.2% year-on-year in November, as they were before to weather the impact of the pandemic.

The truth is that the battery of measures to contain the rise in prices or to relieve citizens has been very extensive. When the decree was presented in August, there was talk of 20,000 million euros, but items have been added. Initially, they included ceilings for the price of electricity and gas, and a universal subsidy of up to 30 cents per liter for gasoline. Some of these mechanisms are going to become more selective in 2023. There will be specific aid for the most needy population groups and even a “firewood check” for low-income people who heat themselves with firewood or pellets in homes and stoves. Also a check for 100 euros for those who have low incomes and have to go to work by car.

Another relevant decision was to limit rents, which may rise a maximum of 3.5% until June 30, 2023. The same percentage increase, this time in salaries, was achieved by public employees. Pensions and some social benefits for the French in precariousness saw a rise of 4%.

There are other minor, but psychologically effective measures, such as the abolition of the audiovisual tax –138 euros a year, to finance public channels–, which 27 million households paid. For students receiving scholarships, these were revalued by 4% and the 1-euro menu in university canteens was maintained.

For companies and the self-employed, other measures were decreed, such as the reduction of employer contributions for overtime in SMEs, and the reduction of social contributions for the self-employed. France hopes to close 2022 with growth of 2.6% and continue with positive figures -between 0.5 and 0.7%- in 2023

ITALY. CPI 11.8%

A package of 21,000 million for energy

Giorgia Meloni’s government made the fight against rising energy costs one of its electoral promises. The Executive estimates the impact that savings will have for companies and families at 21,000 million.

Specifically, the tax deduction for the purchase of electricity and natural gas has been refinanced until March 30, 2023, which will go from 30% to 35% for bars, restaurants and commercial establishments, and from 40% to 45% for companies They consume a lot of energy and gas. For the health sector and for local authorities, including local public transport, some 3,100 million will be allocated. For the most fragile families, the social bonus for energy bills is confirmed and reinforced, with an increase in the income threshold from 12,000 euros to 15,000 euros.

In addition, a VAT reduction of 10% to 5% is applied for baby products and feminine hygiene products. In addition, a fund of 500 million euros has been created for the creation of a “Spending Savings Card” for low incomes of up to 15,000 euros, managed by the municipalities and intended for the purchase of basic necessities. It is a kind of “purchase voucher” to be used in establishments participating in the initiative with an additional discount on a basket of food products.

In order to obtain the necessary resources to finance the aid, it is planned to reformulate the controversial citizen income launched by the previous government of Giuseppe Conte, as well as reduce the partial subsidy for the restructuring of buildings.

In any case, despite the efforts to mitigate the impact of inflation on households, the scar left by the current rise in prices will be visible. Because the Government of Rome has calculated that just indexing pensions to inflation will mean an expense of 50,000 million in the 2022-2025 triennium.

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