From June 1st, fuel prices will fall because the federal government has decided on a temporary tax cut on fuel. Scientists are now proving that the step is not only superfluous because petrol and diesel are not particularly expensive in relation to income, but it is also dangerous.
The price reduction for petrol and diesel is unjustified and flushes additional money into the war chest of Russian ruler Vladimir Putin. This is the conclusion reached by economists in several countries who evaluate the political efforts to lower fuel prices at the gas station.
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In Germany, according to a decision by the federal government, such a price reduction will come into effect on June 1st for three months. A temporary tax cut on fuel is intended to reduce the price of diesel by 14 cents and petrol by 30 cents per liter. There is also a VAT saving. From the scientists’ point of view, this is a rather populist and counterproductive measure.
Gernot Sieg, Director of the Institute for Transport Science at the University of Münster, shows in a recent study that fuel prices in Germany are still cheap in a long-term comparison. It is true that looking at the price information on the pumps at the petrol stations leads to incredulous amazement among motorists. However, a long-term view shows that fuel spending relative to net wages for the same route in 2020 was the lowest since 1997.
And even with the current petrol prices of around two euros per liter, the scientist proves that a smaller proportion of income is still spent on a tank filling than was the case ten years ago. The level of 2012 would only be reached again at a price of around EUR 2.40. “Nominal fuel price records must be evaluated against their real background,” writes Sieg in his study. “Just as inflation reduces the value of money, increases in productivity lead to increases in wages and salaries. In addition, technical progress makes it possible to use energy-efficient engines in passenger cars.”
The professor goes into detail: between 1997 and today, the average net wage of all employees has risen from 1334 euros to 2088 euros. The consumption of the most economical VW Polo has fallen from 6.8 liters per 100 km for the year of construction 1997 to 5.31 liters per 100 km for the year of construction 2019, “not according to factory specifications, but according to actual consumption”, as Sieg calculates. If you combine the two, the result is that even after the outbreak of the Ukraine war and the consequences for fuel prices, drivers can now cover the same distance for less money than ten years ago.
While Gernot Sieg thus unmasks the actions of the federal government as populist, the three Swedish economists Johan Gars, Daniel Spiro and Henrik Wachtmeister come to the conclusion that the tax cuts on fuel even prolong the war. The reason: They flush additional money into the Russian household coffers, which can be spent on weapons, ammunition and soldiers.
The result of their investigation in detail: A tax cut in the EU of 20 cents per liter would lead to more fuel being pumped, which would increase Russia’s oil profits by around eleven million euros a day. This results in more than four billion euros a year and thus seven percent of Russian military spending. “Such tax cuts have problematic consequences, as they increase demand and thus make the current supply even tighter,” write the Swedish scientists. In the end, it is always the oil producers that win – which in Russia’s case are state-owned companies. Economists are therefore warning of tax cuts on fuel prices in the EU. Her counter-suggestion is: Give the people cash, least of it will end up in Putin’s war chest.
The federal government does that too. As part of their relief package, employees receive an extra 300 euros. If the scientists had their way, it would be better not to have decided on the tax cuts on fuel prices.
The article “Traffic lights make fuel cheaper and we are giving Putin even more money for the war” comes from WirtschaftsKurier.