Compared with February, retail diesel prices have risen by more than 70 cents per liter. The VAT component has also increased by 16–17 cents per liter.

Last week, the Estonian Transport Fuels Association made a proposal to the government to temporarily lower the diesel excise duty to the European Union minimum level for three months. This would amount to €330 per 1,000 liters, rather than the current €428.

Poland and Latvia have already reduced their excise duties.

Krista-Maria Alas, CEO of the Transport Fuels Association, said the Estonian government should lower the diesel excise so that businesses in Estonia are not in an unequal position compared with neighboring countries.

"We see that if the excise is lowered, it would smooth out fuel prices for consumers, while at the same time the state would not have to worry about a budget deficit," Alas said.

"We understand that the state budget is in a problematic condition. For it not to suffer too much, we propose to lower the excise, but the VAT component would, so to speak, cover it," she explained.

After sending its appeal to both the government and the Ministry of Finance, the association has received mixed signals.

The government said in its response that it had forwarded the proposal to the Ministry of Finance. However, the Ministry of Finance said that lowering the excise is a political decision to be taken by the government.

"It is very difficult to understand who ultimately makes this decision. From our side, there is a very strong recommendation to the government to address the issue, because we know from history how much fuel prices in neighboring countries affect our competitiveness and economic situation," Alas noted.

Foolish idea

Minister of Finance Jürgen Ligi (Reform) said lowering the diesel excise is a foolish idea and that is why he has not brought it to the government.

"This is like carrying water with a sieve. We do not bring such nonsense to the table that is not helpful but instead causes harm. The international need right now is to restrain ourselves, not to stimulate consumption, but to release reserves onto the market — and the government has already done that. The recommendation of scientists and international organizations is precisely to conserve fuel," Ligi said.

He acknowledged that this does not help transport companies, but stressed that in conditions where the world has released its oil or fuel reserves, demand must not be encouraged.

"If we start lowering the excise, the buyer will not actually see it, it has a negligible effect," Ligi said.

"It would be less than one euro per 100 kilometers that the average driver would gain. And experience shows that prices do not actually depend on the excise rate. It is a fixed amount. The state also does not have the resources to further increase the deficit," he said.

Economist: Estonia could lose its advantage

However, Luminor Chief Economist Lenno Uusküla said it is currently very important to keep energy prices under control.

If the Middle East conflict drags on, Uusküla said tax changes that would keep fuel prices reasonable for consumers should definitely be considered.

"If excise is increased, fuel becomes more expensive. If it is lowered, fuel prices rise less. At the moment, we are talking about fuel prices being high either way, just that then they would be less high than before," Uusküla said.

In Estonia, diesel has been cheaper than in Latvia and Lithuania, Uusküla noted. At times when Lithuania has raised its excise rate, retail sales at local filling stations have increased significantly.

"Now, if Latvia and Lithuania lower excise and we do not, we will lose this advantage. If Latvian and Lithuanian cars previously came to Estonia to refuel, they will now return home. There will certainly be an effect, and it will become visible quite quickly — it can be seen in the data within a couple of weeks," Uusküla said.

Latvia reduced its diesel excise by just over 15 percent for three months starting in April. It had been higher than in Estonia — €467 per 1,000 liters — and is now €396.

In Estonia, the diesel excise was due to rise to €459 euros in May, but the government abandoned this plan due to the consequences of the Middle East conflict.

--

Follow ERR News on Facebook and Twitter and never miss an update!