Tax cuts eat 72% of energy relief

European governments have committed €11 billion to energy relief in 2026. More than 72% of it is going into untargeted measures (Bruegel): VAT cuts, fuel-tax reductions and price relief that helps everyone, whether they are struggling or not.

For Malta, where energy prices quickly become household politics, the distinction matters. Eurozone finance ministers meeting in Nicosia on May 23 called for relief that is "targeted and temporary" (Cyprus Mail). The money spent so far points in the opposite direction.

Flat tax cuts save the rich more

The closure of the Strait of Hormuz since late February removed roughly 10.5 million barrels per day from global oil markets. Brent crude peaked at $138 in April and has settled near $110 (EIA, Fortune). European gas prices rose 56% within weeks (ECCO).

Governments used the quickest lever available. Spain cut fuel VAT from 21% to 10%. Germany reduced its energy tax on fuel by 14 cents per litre, at a cost of €1.6 billion to the federal budget over two months (Bundesregierung). Germany's ifo Institut and the Monopolkommission, its competition authority, found that the cut did reach consumers, with pump prices falling by the full amount. Italy reduced fuel excise duties.

The weakness is built into the design. A flat tax cut saves more money for those who use more energy: larger homes, longer commutes, more cars. The IMF found that blanket price subsidies are regressive, meaning they give a larger benefit to wealthier households than to poorer ones (IMF). An ETUI analysis found that many households that did not need help still received generous transfers, while low-income families remained unable to cover their extra costs (ETUI).

There are more focused models, but they are still the exception. Greece's Fuel Pass gives €25-60 a month to households earning below €35,000 (Ethnos). France doubled its employer fuel premium to €600 a year, a tax-free payment companies can offer workers, though take-up is voluntary (Le Figaro). Across the EU, only four countries have introduced measures aimed specifically at vulnerable households (Bruegel).

Expensive subsidies, empty budgets

Broad tax cuts are now running into weak public finances. Germany's deficit has reached 3.7-4.25% of GDP (INSM). France is at 5.1% (IMF). The number of eurozone countries in an Excessive Deficit Procedure, the EU's formal process for bringing deficits above 3% of GDP back under control, is expected to rise from 10 to 13 this year (Cyprus Mail).

Italy's Prime Minister Giorgia Meloni tried to have energy spending excluded from deficit calculations, as defence spending has already been carved out. No other member state backed her publicly (Euronews). The proposal failed, but it exposed the political problem clearly enough: governments prefer changing the accounting to changing the policy.

Nine days in June

Spain's electricity and gas VAT cuts expire on June 1, with price increases of 9.9% and 11.7% expected (Spain in English). Italy's fuel tax cut expires on June 6. On June 11, the ECB, the European Central Bank that sets interest rates for the 20-country eurozone, decides on rates, and investors expect an increase (CNBC). Germany's cut runs until June 30.

The ECB cannot create more oil by raising interest rates. But with eurozone inflation at 3%, above its 2% target, doing nothing is hard to defend (ECB).

If subsidies expire while borrowing costs rise, lower-income households will pay more for energy at home and more for mortgages at the bank. The Eurogroup agreed on principles in Nicosia, but not on a mechanism to coordinate the exit. Each country will decide alone when to withdraw its subsidies. The first deadline is nine days away.