“By subsidizing fuel, governments reduce incentives to go towards more sober economy

In extraordinary times, during wars and pandemics or natural disasters, political leaders take extraordinary measures to alleviate the economic and social shock suffered by their fellow citizens. Natural gas shortages due to war in Ukraine thus forced certain countries to turn to coal. Governments cannot be blamed to protect households that know energy insecurity. If appropriate measures are taken, subsequent acceleration of decarbonation remains possible and will allow the current decline.

On the other hand, the decision to lower energy and fuel taxes is more difficult to understand. A majority of G7 member countries – Canada, Italy, France, Germany and the United Kingdom – have taken this step, and similar measures receive support from opinion in central and eastern Europe .

By subsidizing fuel, we reduce the incentives to spare energy and create a distortion of the price essential for the passage to a more sober carbon economy. The weight on public finances is also much heavier than that of social transfers under conditions of resource in favor of vulnerable households. But massive subsidies are simpler to implement and have the favor of a larger number of voters.

the Ukrainian example

Similarly, while the poorest households are those who need to be helped to cope with the rapid increase in interest rates, governments are tempted to help everyone. The Polish government, for example, decided, on July 7, 2022, of a general moratorium on the debt service, thus allowing its fellow citizens having contracted a mortgage credit for their “own use” to suspend their reimbursements for eight months. This measure will benefit disproportionately to the owners of the most important goods. It could also weaken the mechanism of transmission of monetary policy by restricting the effects of the increase in interest rates on economic activity, and thus forcing the central bank to raise them even more.

On the other hand, the “support fund for borrowers”, which Poland also widened in 2022 to help those who have lost their jobs or who have to deal with borrowing costs greater than 50 % From their monthly income, is a much cheaper and much more rational measure. By extending its beneficiaries to a larger number of households in difficulty, political decision -makers could avoid many of the distortions mentioned above, while protecting the most vulnerable. Admittedly, such a strategy does not offer the same air puff during the electoral period.

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/Media reports cited above.