If finally, Economy Minister Roland Lescure said on Wednesday morning that he “regrets” having used the term “oil shock” to describe the situation since the beginning of the war in the Middle East, it is clear that prices are still rising dramatically. The average price of diesel was 2.23 euros on Tuesday evening, and 2.03 euros for unleaded petrol 95.
Marine Le Pen, leader of the RN MPs, stated on France Inter on Wednesday morning that the government is benefiting from this rise in fuel prices. According to her, “the government lets prices, especially for fuel, rise and collects additional VAT revenue.” While it is true that the state is making more money thanks to the price increase, it should not be seen as a windfall for public finances.
There are two taxes on fuel prices, which together make up a large part of the price: the excise tax, which is fixed and does not change with the price, and VAT. This part is proportional to the price, so at the moment, it brings more to Bercy, but in fairly limited proportions, as VAT represents only 10% of the liter price.
More broadly, in the medium or long term, when pump prices rise, motorists eventually reduce their consumption, so the positive effect on public finances could be canceled out quite quickly. Especially if the crisis persists, inflation rebounds, and growth declines, as forecasted by INSEE [French National Institute of Statistics and Economic Studies], the state ends up losing more than it gains, as business activity declines, households consume less, resulting in less tax revenue and more public spending to align retirement benefits or social benefits with inflation.
