Wednesday, July 6

Lower the VAT on your electricity bill, a first step of many

This week the coalition government is going to approve a measure requested by United Podemos just a few days ago: the reduction of VAT on the electricity bill from 21% to 10%. It is still being debated whether this decrease should be permanent or should be limited to a certain period of time (until December 2023) – we think it should be permanent because energy is a basic necessity and as such it should have a reduced VAT. . It is also being debated whether this drop should work every month or only those in which the price per kilowatt-hour is especially high – we think it should work every month for exactly the same reason above. But beyond these elements, this is good news that will immediately ease the pockets of millions of families and small businesses. If the electricity oligopoly does not cheat, this tax cut should translate into a drop of approximately 10% in all types of electricity bills.

Today we have to recognize that the policy has worked –although it has arrived late- to improve the problems of the people, today we have to celebrate that the coalition governments have a greater capacity to react to these problems and today we have to applaud the drop in the bill than millions of people will experience it in a matter of days. But today it is also necessary to carry out a deeper analysis to understand the causes of this problem and not lose sight of the solutions that we still have to undertake.

In the first place, although it is good that the VAT is going to be lowered to 10% on the electricity bill, it must be made very clear that the main problem of abusive energy prices in Spain is not taxes but the existence of an electricity oligopoly in which three companies account for 80% of a captive market. This generates enormous opacity in the market and in the setting of prices and allows their manipulation, as has already been denounced and sanctioned by the CNMC itself on several occasions. For this reason, a public energy company must be created in our country, as is the case in almost all the countries in our closest environment. A public company that introduces transparency and real competition in the market, putting the general interest ahead of economic profit and thus driving prices down. If José María Aznar had not sold Endesa to the Italian state, we would already have a public energy company. After the looting of the crown jewels, we are left with no choice but to create one.

In fact, this solution is the only one that can allow the VAT reduction to translate in the medium term into a reduction in the electricity bill and not be reabsorbed in the benefits of the oligopoly. Obviously, this reabsorption cannot be carried out quickly because it would be too obvious and they would expose themselves to sanctions and fines, but a market that works in cartel mode has a great price fixing capacity and the perennial temptation to absorb any tax cut in benefits and not in lower prices for consumers. Although some false neoliberal economists try to make you believe that Unidos Podemos was not in favor of lowering VAT, this is not true. We have always made the same qualification. Lowering the VAT is fine, but if we don’t create a public energy company, it might be bread for today and hunger for tomorrow.

By the way, we have also always said that the drop in state revenue collection that a measure like the one the government is going to take should be offset by increasing taxes on large corporations and large fortunes. If we want to continue improving our Welfare State, this must also be done.

On the other hand, even if we lower the VAT on the electricity bill, the electricity market is still a marginal market. In other words, it is still a market in which the kilowatt-hour finally paid by the final consumer sets its price with the price of the kilowatt-hour produced by the most expensive technology, typically gas. This produces the so-called “profits out of the blue”, which are nothing other than unjustified benefits to technologies that have already been amortized long ago and that receive for each kilowatt-hour produced much more money than their cost of production. Two weeks ago, the coalition government took a courageous first step in reducing these benefits from the sky for the first time in our country’s history by changing the part that has to do with CO2 emission rights. Thanks to this measure, every year, one billion euros of profits dropped from the sky disappear from the oligopoly results sheet to become a drop in the electricity bill. But this has not completely ended this unjustified remuneration to the electricity companies. This has only reduced a part of the profits that fell from the sky. For this reason, we say that we must continue moving in this direction and establish, as is already the case in other countries, maximum prices for nuclear kilowatt-hours and hydroelectric kilowatt-hours, the ones that benefit the most from this market dysfunction.

Likewise, it is necessary to approve a Solar Roof Law that favors the installation of photovoltaic panels in new constructions, on the roofs of industrial buildings, in public buildings and also in already built neighborhood communities. Photovoltaic energy is not only one of the cheapest, which would contribute to lower the bill even more, but it is also the most democratic, as it does not require a large business structure to become a producer. A solar roof law would make us advance in the energy transition, lower the electricity bill and democratize energy production, thus also limiting the power of the electricity oligopoly.

Finally, it is important to implement the section of the government agreement in which we committed to a reform of the electricity bill to make it progressive in consumption sections. That is, a reform of the electricity bill so that the first kilowatt-hours that are consumed are cheaper and, as one consumes more and more, the kilowatt-hour increases in price. In this way, we not only place an incentive to save energy in the electricity bill in line with the ecological transition, but we also make those who spend much more pay proportionally more while those families who consume what is necessary to have a comfortable life, pay less.

Today we must applaud that the government has finally reacted by lowering the VAT on the electricity bill to bring immediate relief to millions of families and small businesses but today we also have to say that, with regard to the electricity bill, energy oligopoly and the electricity market, almost everything has yet to be done.