Swedish Fiscal Policy Council criticises ‘too large’ electricity subsidy

Sweden's Fiscal Policy Council, the government's own council of experts on financial policy, criticised the 60 million kronor energy price subsidy in its yearly report, presented on Wednesday.

Swedish Fiscal Policy Council criticises 'too large' electricity subsidy
Lars Heikensten, head of the Fiscal Policy Council. File photo: Claudio Bresciani/TT

“I don’t think all the households with dramatically high energy prices think the subsidy was too large,” Sweden’s finance minister, Elisabeth Svantesson, said after the report was published. 

The council argued that it would have been better to offer a less extensive subsidy, with the government instead focusing more on support aimed at particularly vulnerable households.

“If they had not offered such large subsidies in those areas, they would have had the opportunity to do other things which we believe would have been better for the economy,” said Lars Heikensten, chairman of the Fiscal Policy Council.

The money could, according to the council, have also been used for measures aimed at increasing economic growth – measures which the report states are “conspicuously absent”.

The council’s vice chairman, Lisa Laun, agreed that there was good reason to give a certain amount of economic support to households. She did, however, point out that subsidies in general are problematic, as the best way to lower electricity prices is to reduce the demand for electricity.

Svantesson argued that the government had instead made sure that households were partly refunded for the cost of capacity charges, adding that it would “not have been possible” to give more tailored support to vulnerable households.

“We used the capacity fees to refund the fees households and companies had paid in,” she said.

The council argued, however, that the government would have been better able target measures to vulnerable households in its budget, without also fuelling inflation, if the energy price subsidy had been less extensive.

The price subsidy announced in January, which compensated for households across the country for energy prices in November and December last year, came in for particularly harsh criticism, as households in southern Sweden had already received compensation through the subsidy announced by the previous government prior to the election.

Svantesson, however, said that the price support subsidy announced in January had not compensated users in southern Sweden twice, as it covered a different time period.

The council was also critical of the energy price support subsidy offered to companies in southern Sweden, arguing that companies to a large extent have been able to pass on their increased energy costs to consumers.

“High consumers of electricity also often have long, fixed energy contracts, meaning that there’s a risk that the subsidy for companies actually exceeds the increased costs they’ve paid for electricity,” Laun said.

The government wanted to subsidise companies as soon as possible, Svantesson explained.

“Of course, there’s almost always room for improvement. If we offer some type of energy subsidy in the future, it’s good to take these viewpoints into consideration.”

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Sweden’s government to slash tax on petrol and diesel

Sweden's government has announced plans to slash tax on petrol and diesel next year, cutting revenues by an expected 5.6 billion kronor (€500m).

Sweden's government to slash tax on petrol and diesel

Energy Minister Ebba Busch called the measure “important, necessary, and long-awaited” at a press conference held alongside Oscar Sjöstedt, finance spokesperson for the far-right Sweden Democrats. 

“We know that many families are having a tough time right now,” she said. 

The government is proposing to cut the tax on petrol by 1.64 kronor per litre, and the price of diesel by 43 öre per litre in 2024, which, if an extra measure to cut tax on agricultural diesel is included, will cost a total of 6.5 billion kronor. 

Sjöstedt said the amount that the price would actually change at the pump would depend on global fuel markets as well as government taxation. 

“Of course, something can happen that can neutralise the impact of a tax reduction, but it could just as well have a boosting effect,” he said. “The difference is that that, all things being equal, the tax will be lower.” 

In the run-up to last September’s election, the Moderate, Christian Democrat and Sweden Democrat parties all promised to cut the price of fuel at the pump quickly, with parties promising cuts of as much as 10 kronor per litre for diesel and 5 to 6 kronor per litre for petrol. 

Sjöstedt defended the government’s failure to drive through cuts in the price of this magnitude. 

“None of our parties got their own majority and that means that you can’t get 100 percent of your policies through, but have to compromise,” he said. 

Fuel taxes are a key part of the arsenal governments have to reduce carbon dioxide emissions from the transport sector and the current government’s decision to sharply reduce the biofuels obligation — the share of biofuels mixed in with petrol and diesel — is the main reason why Sweden is now on track to miss key emissions goals. 

At the press conference, Busch said that she could not give any assessment on what impact the tax cuts she was announcing would have on emissions. “That’s a calculation we have not yet made,” she said.

However, in an analysis document released alongside the announcement, the government estimated that the change would increase emissions by about 350,000 tons in 2024 and 490,000 tons in 2025.