New research published recently by VaasaETT, shows that electricity and gas prices, which have been generally surged in Europe ever since the beginning of 2010, have now reached their highest level in 4 years. The highest increase in prices were in general found in Mediterranean countries including Greece, Portugal and Italy. Between 2011 and 2012 alone, Portuguese households have typically experienced an increase of around 12% in energy prices. In Italy prices went up by around 11% in the same period and in Greece by around 7%. The prospects for 2013 do not seem much easier for Mediterranean households as prices are estimated to surge even further.
A great part of the higher prices can be explained by government intervention. For example in Portugal the VAT rate jumped from 6% to 23%. The reason behind the considerable increase in VAT was that the government wanted to raise more money from the taxpayers in order to meet the bailout requirements. Likewise energy prices were raised in Greece by about 21%. However in Italy price changes were largely due to an increase in distribution prices.
From a government perspective energy is a convenient item to tax because of the inelastic nature of the demand for energy. In addition to that most customers are actually unaware of what comprises the price they pay. The energy industry is far too complex for the individual average consumer to understand the mechanisms at play. Therefore it is easy for government to increase energy costs for consumers without facing such fierce opposition as may occur if similar attempts were made in other areas. A concrete example is the opposition the Cypriote government faced when taxing bank accounts in Cyprus.
Many of the points raised in this article have been drawn from a newly released report on Residential Energy Prices 2013 by VaasaETT – global energy think tank.