The big economies take out the checkbook to cushion the blow of inflation and the energy crisis

Inflation is tightening and no one is willing to sit idly by.

While central banks have turned their monetary policy 180 degrees, with an unprecedented rate hike in the case of the European Central Bank, governments are preparing the tool at their disposal: fiscal policy.

Like Spain – which has announced temporary taxes on banking and energy companies, tax discounts on fuel and electricity bills, or changes in personal income tax and companies – all the large continental economies have outlined changes in recent weeks.

From the German aid macro-package, which has aroused misgivings in the rest of the partners, to the tax cut announced by the United Kingdom, which generated turbulence in the markets and forced the Bank of England to intervene.

Germany, the most ambitious plan

The German Minister of the Economy, the liberal Christian Lindner, presented last Thursday in Berlin the last and forceful fund with which he intends to combat inflation and help companies and citizens to alleviate runaway energy prices.

Olaf Scholz's government has taken out the checkbook: it will use 200,000 million euros (equivalent to a quarter of the entire European recovery fund) above all to put a cap on the price of electricity and another on gas.

The mechanism, which has sparked criticism among European partners for the impact it may have on competition, has yet to be developed.

The initial agreement indicates that, in the case of electricity, a maximum price will be established for a section of basic consumption and the extra benefits of the companies will be used to help finance it.

For gas, Scholz has appointed a committee of experts that will make his proposal in two weeks and will also include a basic consumption with a limited price.

In August, Berlin also announced the reduction of VAT on fuel, from 19% to 7%.

In principle, it was intended to offset the controversial surcharge on gas that consumers were going to pay on their bills as of October 1, but this has been abolished.

Gas importers that have problems, such as Uniper, which is going to be nationalized, will receive specific aid.

It is estimated that the reduced VAT will cost some 14,000 million to the public coffers.

The Executive of the Social Democrat Scholz has also launched three aid packages very focused on groups especially affected by inflation, which include direct and single payments to retirees, students and workers to meet the bills this winter.

France contains inflation

France, with all the weight of its omnipotent State and a deep-rooted interventionist tradition, has mobilized like few others to contain the rise in prices.

So far she has made it.

It is the EU country with the lowest inflation, 6.2%, according to the latest Eurostat data.

It has achieved this, in large part, with the so-called

that it launched at the end of 2021. This has limited the increase in the price of electricity to a maximum of 4% by 2022 and has frozen the price of gas.

In 2023, it will limit both the increase in gas and electricity to 15%.

Its cost is estimated at 30,000 million this year and, according to the recently presented budget project, 45,000 million in 2023.

Other measures are the reduction of 30 cents per liter in the price of gasoline (10 cents from November) and a limit of 3.5% for one year for rent increases.

There is also aid aimed at the most vulnerable groups, such as a 4% increase in social subsidies (also applicable to pensions), or an

of between 100 and 200 euros that the 12 million most modest households will receive until the end of the year .

Price constraints on energy have left a hole in Électricité de France (EDF).

The semi-public company, which is about to be nationalized again, has brought its main shareholder, the French Republic, before the Council of State for the losses caused.

The president, Emmanuel Macron, established a red line in economic policy when he came to power in 2017: not to raise taxes.

What he has done is slow down the rate of reduction of the tax on the production of companies.

And to pay the bill for the approved measures, it hopes to obtain higher income from the compensation mechanism that allows the State to recover part of the excessive profits that, thanks to the rise in prices, renewable energy companies receive.

Italy lowers prices

The Italian Government, under the guidance of the outgoing Prime Minister, Mario Draghi, approved in the summer a package of extraordinary measures aimed at mitigating the effects of high inflation, which in the transalpine country touched 9% in September.

Italy will spend 17,000 million euros in this plan, focused on protecting businesses and families from rising energy prices and consumers.

They are added to the 35,000 million budgeted since January to mitigate the impact of the very high costs of electricity, gas and gasoline.

Of the total, 1,200 million will go to reduce the so-called tax wedge, the difference between the salary paid by the employer and what the employee receives.

In this line, the contributions of the workers will be reduced by 2%, which is not a real increase in wages, but in practice it will mean an effective increase in the payroll received by workers with annual incomes of up to 35,000 euros.

Rome has also extended the 30-cent discount on fuel prices until mid-October;

it has suspended “unilateral modifications of supply contracts” and has eliminated the so-called system cost levies, which represented up to 20% of energy bills.

It has also reduced VAT on methane gas for domestic and industrial use to 5%.

The measures are temporary, many are extended and expire in December.

It is expected that the new Executive, still to be formed after last week's elections, can extend them if necessary.

United Kingdom, against the tide

The new Prime Minister of the United Kingdom, Liz Truss, won the victory in the fight to lead the Conservative Party, last summer, by promising a tax cut that all the experts discouraged, but that was music to the ears of the little more than 80,000 affiliates who took him to Downing Street.

The Economy Minister, Kwasi Kwarteng, as convinced as his boss of the need to revive the neoliberal policies of the 1980s in order to boost an economy that has been lethargic for more than a decade, presented on September 23 the largest proposal to lower taxes of the last half century.

The plan, worth more than 50,000 million euros,

includes the reversal of the rise in social security contributions approved by the previous government and intended to finance the battered National Health Service.

It also cancels the increase for 2023 of the Corporate Tax from 19% to 25%;

ends the maximum rate of 45% of personal income tax for the highest incomes;

and, finally, lowers the basic rate of income tax from 20% to 19%.

If the decision already sent out a politically toxic message, by fiscally benefiting the richest with a generalized tax cut, everything was further aggravated by the decision of the new Government to allocate nearly 150,000 million euros to direct aid to households and companies to cope with high electricity and gas bills.

All that money, along with the tax cut, would come directly from the public debt, because Prime Minister Truss also refused to re-tax extraordinary profits from energy companies.

Immediately, the markets sensed that the expected level of debt, with runaway inflation (9.9%) and rising interest rates, was unsustainable.

The value of the pound plummeted to its worst level in almost forty years and the risk premium on long-term bonds soared.

The Bank of England, which just six weeks earlier had announced its decision to stop granting massive liquidity with the famous

(quantitative easing), had to take a drastic turn and announce that it would resume the purchase, "on the scale that was necessary", of long-term public debt bonds.

The IMF, the main banks and investment funds, and many conservative deputies have begun to add voices in recent hours for the Government to back down.

The response, for now, has been to stand firm in his decision.

The Bank of England has promised to spend more than 70,000 million euros until October 13.

From then on, the markets will dictate whether Truss's economic credibility holds up.

The Netherlands raises taxes on the rich

With 17.1% inflation this September, the highest count since World War II, the Government of the Netherlands hopes that the injection of 17,000 million included in the General State Budgets will serve to prop up purchasing power.

Sigrid Kaag, Minister of Finance, has described the rise in prices as "terrible", but has also asked for reassurance: "We must be careful not to run out of money in the event of a recession;

intervening now by spending more could reinforce inflation.”

According to the Fiscal Plan for 2023, presented to Parliament on September 20, the current taxes on fuels will be maintained until next June, with reductions for gasoline, diesel and liquefied gas.

The rate of income tax for workers will also drop: it will go from 37.07% to 36.93% in the range of up to 73,071 euros.

Together with this, there will be ceilings for the price of gas and electricity paid by households, with the Government absorbing a part.

A discount of 1.50 euros per cubic meter of gas and 70 euro cents per kilowatt of electricity is calculated, although the figure is subject "to the uncertainty of the moment", according to the Cabinet.

At the same time, the tax on capital gains from high incomes will go from 31% to 34%.

Belgium: general strike

On September 21, some 10,000 people demonstrated in Brussels, a rehearsal for the general strike that unions have called on November 9 in Belgium.

They demand the total indexing of salaries to the CPI, which since July shows rises above 10% and in September it has reached 12%.

As in all of Europe, the main cause of inflation is energy.

Hence, three days before that demonstration, the Belgian Government approved a new package of measures to lower the bill.

It extended until March 31 the reduction of VAT on gas and electricity from 21% to 6%, which is added to other aid so that the most vulnerable households can pay for heating.

And to all this is added a reduction in excise duties on gasoline and diesel.

The fiscal package was completed with the presentation of a bill to create the tax on extraordinary profits that energy companies are obtaining due to high gas prices.

The Government of Alexander de Croo was thus anticipating the final approval by the Council of the EU of the recommendation to tax the so-called profits that fell from the sky.

Apart from this conjunctural package, the Finance Minister, Vincent van Peteghem, has been in favor of reducing taxes "on the middle classes".

His proposal is to reduce an extraordinary contribution to Social Security that all workers have paid since 1994. And his argument is that in principle it was a tax for the rich but now it is paid more by the lower and middle classes.

Corporate tax hike in the US

MIGUEL JIMENEZ (Washington)

The president of the United States, Joe Biden, recognized in a meeting with the president of the Federal Reserve, Jerome Powell, that the leading role in the fight against inflation corresponds to the central bank.

Still, aware of how price hikes have eroded his popularity, he tried to suspend the federal gas tax for three months.

He did not get the support of even his own party and he was a dead letter.

Biden called his flagship bill, the Inflation Reduction Act, approved by Congress in August.

Even the official reports have recognized that the name is more political than economic and that it will not have an effect on inflation in the short term, but it has allowed the president to score a point and use the price reduction of some medicines for certain groups as electoral tricks, aid for electric cars and energy efficiency and other climate measures, and a tax increase for large companies.

The new law taxes the repurchases of shares by companies at 1% and, above all, establishes a minimum tax of 15% for companies that declare a profit of more than 1,000 million dollars in their accounts, but that use deductions, tax credits, and other tax engineering maneuvers to lower your tax rates and even avoid paying taxes on profits.

The Congressional Budget Office put the impact of the 15% minimum tax at $222.25 billion over 10 years and the share repurchase rate at $73.7 billion, also over a decade.

More means against tax fraud and other measures will also raise revenues, but income tax has not been touched. 

With information from

(Berlin),

(Paris),

(Rome),

(London),

(The Hague) and

 (Brussels). 

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