Authorities consider reducing VAT on flour and sunflower oil

The proposal to reduce VAT on certain basic foodstuffs remains in place. According to economists, the government needs to intervene (revise legislation and make changes) to keep prices low.

And although this scenario was repeatedly refuted by the ministers, the prime minister himself left the possibility open, thereby preserving the chances for “intervention” in pricing policy.

At the moment, the authorities are considering all the possibilities to create the necessary “barriers” in the frenzied price race. However, the negative consequences of the situation in Ukraine are a big obstacle.

It is assumed that the consequences of Russia’s military invasion of Ukraine will lead to a revision of the Greek budget in an unfavorable direction, increasing spending by more than 4 billion euros.

The base budget scenario forecasts a growth rate of 2.5%-3% compared to the original forecast of 4.5%. Based on the forecast of experts and analysts (in the sense that if hostilities in Ukraine drag on for many months), Greece is expected to reduce GDP growth by 2.5 points (with a rate below 2% planned for this year). This means that losses in the real economy will exceed 4 billion euros.

Public finance personnel are concerned about the consequences for households and the economy as a whole, and therefore are looking for ways to “pacify” inflation in every possible way. There are several proposals on the negotiating table that could help bring prices down, but everything will be decided based on the budget.

At the moment, preference is given to a proposal to reduce VAT on basic foodstuffs by 6%. However, the measures will remain targeted and touch on basic foodstuffs, which are the basis for calculating inflation.

In this context, scenarios of temporary “VAT zeroing” for some products (vegetable oil and flour) seem unlikely, but are considered as a priority.

To the measures already taken to “fight inflation” taken by the Greek government, we should add assistance to low-income pensioners and social beneficiaries.

It is assumed that there will be no negative reaction from the European Commissioners, as the arguments are strong. However, the Panel of Commissioners has already given Member States the green light to cut VAT on food to stem the rise in prices.

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