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Comment by whatshisface | Hacker News Reader

How exactly do these governments subsidize fossil fuels?

The UK in particular charges 5% VAT instead of the normal 20% for natural gas, heating oil, solid fuel and electricity for residential use. They claim that this isn't a subsidy but tax breaks for specific product categories sure sounds like a subsidy to me.

Well, most food has 0% VAT, as well as other necessities... I gather at least home energy should have a similar treatment. At least up to some level.

As far as I understand, the low vat on home energy is more to do with electioneering than anything else:

http://www.lse.ac.uk/GranthamInstitute/news/why-the-uk-gover...

How do you split food into "luxury" and "basic" foods? A 1 pound loaf of bread is "basic", a 5 pound loaf is "luxury"? What an impossible task. Far easier to put the VAT on all food and then send a rebate check to everybody on the assumption that the average food spend is "basic" and anything above average food spend is "luxury". Same thing for home energy. Heating a 1000 square foot flat is "necessity", heating a 5000 square foot flat is "luxury"....

It is not that hard. See what is sold in a luxury store deduct what is sold in average Joe grocery stores and what you got is luxury food items.

Is it that easy? I suspect you'll get an objection or two about junk food from doing that.

Imagine how much fun marketers will have with that kind of measure, if it's a 20% difference.

It isn't about size, it's about the nature of the foodstuff.

A biscuit is basic.

A chocolate biscuit is luxury.

Cake is basic

Meals you cook at home are basic

Meals someone cooks for you (e.g. restaurant or takeaway) is luxury.

(among other examples)

Normally the rules are pretty good but there are some cracks.

Google Jaffa Cakes and VAT...

TLDR cake is a basic food whilst chocolate biscuits (cookies to Americans) are luxuries.

Why is cake a basic food but not cookies? Does cake mean something different in the UK?

Biscuits are basic, but chocolate biscuits are luxury.

Chocolate cakes are basic.

Cake is a made up drug.

> Cake is a made up drug.

I know that I am not supposed to comment on upvotes but I wish I could upvote this more than once. The world needs more of this series.

Every child deserves a birthday cake... Every married couple deserve a wedding cake... We use cake to celebrate important life events that every member of society has the right to enjoy.

Ah, thank you for the explanation!

Sure, there are bound to be edge cases.

If you're a big or tall 15 year old boy chances are your clothes are taxable because they're the same clothes as an adult and those are taxed. But if you're a petite woman you may rarely pay tax on clothes because you're fitting in stuff that was targeting a typical 15 year old girl.

This is a tricky one to eliminate because of the problem of "fuel poverty": people, especially the elderly, who are unable to heat their houses to acceptable levels in winter. There's even a separate "winter fuel payment" for OAPs, but that's not tied to any actual consumption.

Really there should be a plan to transition away from those tax breaks for everything except green electricity. Oil first, natural gas last. The few remaining people dependent on heating oil are having trouble affording it anyway - but they tend to be rural.

Electric heating isn't terribly viable as an option in the UK. An awful lot of our winter electricity comes from fossil fuel generation especially during cold winters when demand is highest, it's expensive and inefficient to convert gas to electricity and run that through a heater instead of burning it directly, and we're too temperate a climate for heat pumps to be viable except maybe on new builds. Also, electricity supplies to rural areas aren't terribly reliable during bad winter winter so it's probably not that suitable for heating.

We're supposed to be phasing out gas for new build homes in a few years but I'm not convinced it will actually happen.

I have move to UK, and to my surprise it has exceptionally poorly insulated and leaky homes, even new builds, even compared to ex-Soviet Europe.

It's really a colossal waste of money, as insulation would pay for itself very quickly. A government program is needed to rebuild a lot of older homes. Combined with general shortage of new housing and quality issues, housing in UK is quite a sore point for me.

Yes, it's a disgrace. There is an insulation programme, and it's achieved very little.

I'm not really sure why. Belief that being cold is "character forming"? Obsession with traditional architecture? Failure to realise the real temperature swings?

> I'm not really sure why.

Cheap fossil fuels?

That 5% rate applies to all sources of energy for heating and power, and a good chunk of our electricity comes from solar and wind. it also currently applies to the cost of domestic solar and wind installations and insulation retrofits, though that's going to have to change soon due to EU rules.

Anything residential is complicated since VAT can be regressive for essentials like heating oil.

I'd argue that a lower tax rate is actually better than a traditional subsidy: the discount is applied at the time of purchase, while the subsidy is applied at a later date (such as at tax time, for many subsidies in the US).

Tax claims, usually. Spent X dollars on fuel for farming or mining? Here's Y dollars off your tax bill.

Isn't every business allowed to depreciate their purchases?

For land producing minerals, there is a special tax rule called “percentage depletion” available to some taxpayers. With percentage depletion, the owner can deduct a fixed percentage (15%) of gross income every year. This can add up to more than the original amount invested in an oil field.

Normally, the depreciation allowance for capital investment over a period of years can only add up to the amount originally invested.

Spending money on a commodity isn't like buying a mainframe. And these are specific deductions and claims for fossil fuel products.

If the business has to pay tax to the government it isn't really a subsidy, which I think it usually the case with oil and gas. The UK govt seems to have received £1.2 bn from the oil and gas businesses in 2018/19. (https://assets.publishing.service.gov.uk/government/uploads/...)

While there are some direct incentives for fossil fuel producers, most of the subsidies go to commercial use of fossil fuel products.

Why? The net effect is exactly the same.

Government takes money from business = tax

Government gives money to business = subsidy

The oil industry is the first one even if depreciation allowances are involved in the tax calculation.

You might want to check out the concept of a Tax Expenditure https://en.wikipedia.org/wiki/Tax_expenditure, which is when a government lowers tax on something.

It's still an odd use of the word subsidy. I wish I could subsidise the oil industry by having them send me large amounts of money. Maybe we can kill the oil industry by tripling the subsidies so they have to send the government three times as much? It makes it hard to have sensible discussion.

Is there a word for whether the government pays to the industry or visa versa if tax and subsidy have been redefined to no longer mean that?

Many governments set the price at the gas pump and subsidize the difference.

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