Compensation for electricity price hikes discussed in Latvia

In response to a sharp increase in electricity prices, the sectors, together with the Ministry of Economics, are proposing to temporarily not only reduce the value-added tax (VAT) on electricity but also halve the electricity distribution tariff, Latvian Television reported December 9.

On Monday, these proposals are scheduled to be discussed at a meeting of coalition parties.

The economy is based on legal relationships. If electricity becomes more expensive, many other goods and services where it is used will also be more expensive. If electricity prices do not decrease, the most disadvantaged will suffer, indicates the Latvian Association of Local Governments (LPS).

"These people will simply lower the quality of their lives. The impact refers to any service. Once electricity prices rise, the cost of heating, water supply increases, which is in the municipal section. Transport charges – trams, trolleybuses are also increasing. Food prices are rising. It's a chain," said Aino Salmiņš, representative of LPS for Economic Affairs.

The LPS considers that it is not only necessary to reduce VAT on electricity but also to introduce targeted support for vulnerable groups.

The head of the Latvian Employers' Confederation of Latvia, Līga Meņģelsone, acknowledged that the reduction of VAT will not help much for large manufacturing companies.

"What is most dangerous is that our big producers – usually as a rule – are also big exporters. And, as we know, it is the exporters that helped us to survive this Covid time, because the financial situation in the state budget was good, thanks directly to that. Consequently, there are two hazards here. One is the issue of the state budget and the other, of course, is a matter of employees and employment," Meņģelsone said.

After hearing the proposals from industry organizations, the Ministry will move two proposals in further negotiations with the governing coalition partners: to temporarily reduce the VAT tax to 5% for electricity and to halve the electricity distribution tariff. Concrete calculations will still follow.

"It's an emergency, an unprecedented situation, and price hikes are really big. This must be on the government's agenda as the first issue to be addressed immediately. And decisions must be taken as quickly as possible," said the Minister for Economics Jānis Vitenbergs.

Vitenbergs hopes that on Monday the coalition partners will support the proposals and will adopt measures to support households and entrepreneurs at the government meeting on Tuesday.

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