Seeking fairness in subsidies

Finance Ministry says there are obstacles to electricity bill support through focus on poorest

Seeking fairness in subsidies

The government is spending over a billion euros each month to ensure that households and businesses do not have to spend an exorbitant amount of money on their electricity bills as the result of the global energy crisis.

The government is covering more that two-thirds of the cost of electricity to ensure consumers pay around €0.15-€0.17 per kilowatt-hour (kWh), depending on the provider. Yet, the subsidy system has come under criticism because subsidies are horizontal, that is, are exactly the same whether the households are rich or poor, businesses big or small. Holiday homes are being subsidized the same as main residences.

The critics assert that aid should be targeted to prioritize the poor, the insolvent and the small businesses and that precious resources should not be lavished on the rich and wasteful, who consume inordinately high amounts of power.

Finance Ministry officials counter that such targeting would provide little additional relief, adding that there are a number of complicating factors that make targeted subsidies difficult to implement.

In August, the officials say, support measures for electricity bills will be around €1.14 billion. Of that, €720 million will be provided to businesses and €420 million to households. Among the latter, €300 million will go to those households consuming less than 300 kWh per month. So, cutting out heavy consumers could save, in theory, up to €120 million. But, the ministry officials say, cutting off these subsidies could affect large families, many of them classified as vulnerable.

Adopting income criteria also faces difficulties: first, one of processing. Many electricity bills are not issued in the name of the person that rents a property, but the owner. Ascertaining who is who and adjusting subsidies accordingly could turn into a logistical nightmare. Not to mention that declared income often does not correspond to the actual one, because of widespread tax evasion.

Despite these objections, the Finance Ministry recognized that the principle of state aid tailored to prioritize the needs of the poor and vulnerable is correct. They say they are still searching for ways to implement it. But no satisfactory solution has emerged yet.

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