Belgium Plans Temporary Power Tax Cut to Contain Energy Bills

(Bloomberg) --

Belgium agreed to extend tax breaks aimed at containing energy bills to middle- and high-income residents as high prices continue to take an outsized toll on consumers.

The government is planning a combination of a one-time rebate and a temporary cut in the value-added tax rate that may get extended in a move to shift taxation to natural gas from power.

The VAT rate on power will drop to 6% from 21% for four months starting March 1, and every household will also receive a one-time rebate of 100 euros ($113) on their electricity bill, Prime Minister Alexander De Croo said Tuesday at a briefing in Brussels. The preferential power tariff for low-income people, a benefit worth as much as 800 euros a year, will also be extended for another quarter.

“We are fully returning additional tax proceeds to households,” Finance Minister Vincent Van Peteghem told reporters. “But at a time when a lot of working people are struggling to pay their energy bills, it also remains important to reduce labor taxation.”

Van Peteghem and Energy Minister Tinne Van der Straeten are still working on a plan to replace the value-added tax on electricity with excises, which have the advantage of being more flexible and could be used to cushion both rising and falling wholesale prices or to differentiate taxation based on consumption.

Belgian households face the third-highest power prices in the euro region, trailing only Denmark and Germany, according to Eurostat data. That's largely a consequence of financing renewable-energy subsidies and social benefits via electricity bills. Gas prices for Belgian households are below the euro-area average, according to Eurostat.

In a separate move, the Belgian government last night decided to limit a cut in personal income taxes of about 100 euros annually to those earning gross salaries of 3,500 euros a month or less. The measure will be financed with higher excises on tobacco and a newly introduced tax on air travel.