Why the exorbitant prices are here to stay

Why the exorbitant prices are here to stay

Fuel has been going from record to record since the start of the year, and for the first time, diesel exceeded €1.60 per liter, driven by higher oil prices. The situation should not improve. The surge in fuel prices is likely to continue, as tensions in energy markets remain severe. explanations.

How is the fuel price configured?

Just over a third of the fuel price corresponds to the price of oil and more than half of it is tax-related between VAT and TICPE. According to the French Federation of Petroleum Industries (Ufip), for a liter of diesel at 1.62 euros, taxes are approximately 88 cents, or more than 54% of the total price, slightly lower since 2007. On 95 unleaded petrol, it represents Taxes 57% of the pump price. Concretely, VAT is applied first before TICPE, and then a second time on the amount including TICPE. The result for the consumer is a multiplier effect: an increase in the price of oil increases the cost of both taxes, which at the same time increases the price at the pump more strongly.

Can prices continue to rise?

At more than $88 a barrel, Brent crude hit its highest level since 2014 on Tuesday and the trend may continue. According to Carsten Fritsch, analyst at Commerzbank, geopolitical tensions in the Middle East, particularly linked to the Yemen conflict, and production that is still below demand continues to drive prices up. In question, many OPEC+ member countries have been unable to reach the quotas set during recent negotiations within the organization despite rising demand, according to Tamas Varga, an analyst at PVM Energy.

However, oil is still far from its absolute record, which it reached in 2008, in a full-fledged sub-loan crisis, as a barrel of Brent crude exceeded $146 in August 2008, before declining at the beginning of 2009 by about $45.

What room for maneuver does the government have?

If he refuses to dwell on taxes in this area, in fact it is very small. In mid-October, when the price of diesel was 10 cents below its current price, the Minister for Environmental Transformation, Barbara Bombelli, called on distributors to “make a gesture (…) by reducing their margins”. Then the head of Ufip confirmed that the net margin for distributors is “about one cent a liter”. The executive finally chose the tax-free “middle class bonus” of €100, which was paid in December to the 38 million French people earning less than €2,000 a month. A check intended to respond to higher prices in general.

However, tax cuts are complicated for the government, in the context of the slide in public finances, largely due to the support of the economy in the period of the pandemic. However, TICPE is one of the main tax revenues of the state, and an increase in the price of oil necessarily leads to an improvement in its yield, and a godsend for the budget. In the early 2000s, the government of socialist Lionel Jospin created the “floating” TIPP (predecessor to TICPE) system, which eased fuel prices in the event of high oil prices. If the idea has regularly returned to public debate in recent years, it is not on the agenda.

Will the government take more action?

In the face of rising energy prices, Economy Minister Bruno Le Maire confirmed, on Wednesday on BFMTV / RMC, that “no door” is closed to the new measures, while emphasizing the cost of those already implemented. “Instead of inflation and energy checks and what we did about the EDF and what we are doing to reduce gas prices: the bill for all these measures is 15 billion euros that the state has already committed to protect the French,” the minister said. .

When asked about the advisability of lowering the value-added tax rate on gasoline to 5.5% from the current 20%, Bruno Le Maire was cautious. He emphasized that “ten euro cents less per liter, compared to a full 50 liters, five euros less” for the consumer, but “5 billion” in lost tax revenue for the state.

“We have to measure the costs that this represents, the loss of income for the state, for public services,” added the minister, who had on numerous occasions shown himself hostile to such a measure. I will continue to monitor fuel prices, and see if additional measures are needed. “We are constantly working on adjusting the systems,” Bruno Le Maire said.

Leave a Comment

Your email address will not be published.