Manuel de Almeida/ Lusa

Fuel crisis: Government prepared to reduce IVA/ ISP on fuel in “extreme scenario”

Portugal’s government is described as “admitting the reduction of IVA and/ or ISP (taxes on fuel) in an extreme scenario in which the price of oil hits an unsustainable value for the economy”, writes tabloid Correio da Manhã today

The news comes as outgoing PSD leader Rui Rio has pointed out that the government will actually be making money out of this crisis as citizens struggle to make ends meet.

The State Budget (admittedly, not yet approved as the government itself has yet to be officially sworn back into office) sees ISP (the special tax on fuel) as a fixed amount, but IVA is a ‘moveable feast’ in that it remains 23% of whatever price is being charged.

To maintain IVA in this way would be simply to make money out of taxpayers’ hardship. The government “could reduce taxes”, Rio insists.

But nothing is ‘simple’: first, the ‘unsustainable value for the economy’ is as yet unspecified (and will generate an enormous amount of controversy: there will be those saying fuel costs have already reached this point); second, any decision have to be taken at a European level.

What is without doubt is that a reduction in taxes will reduce the cost of fuel straight away: taxes make up the lion’s share of what every country is paying for itsf uel, Portugal particularly (where taxes make up around 61% of the cost of every litre).

As of today there have been new hikes at the pumps: some predicted 19 cents more on diesel, eight on petrol. The reality appears to be more like 14 cents on diesel, but this is just Monday… Portugal has suffered 11 price increases on successive Mondays since the start of this year.

Finance minister João Leão, in increasing the amount the government is reimbursing drivers through the autovoucher scheme (click here), said “more measures could be taken in line with the evolution of the international political situation, and decision taken by the European Union”.

There is little doubt that the longer the war continues in Ukraine, the more fuel will increase in price.

Analysts JP Morgan have said that the price of Brent (crude) in the North Sea could hit 185 dollars a barrel, which, if it does, will be a new ‘world record’ (the last (145.5 dollars per barrel) being achieved in 2008 during the financial crisis).

And just as fuel is going through the roof, so too are costs for electricity which are expected to hit a new record today, say reports, of an average of 442.54 euros per MWh.