The executive in Lisbon intends to introduce a six-month zero VAT rate for a list of 44 basic food products to combat high inflation, Prime Minister Antonio Costa announced, as quoted by DPA.

In Portugal, the VAT rate on basic food items such as rice, pasta, bread, milk, dairy products, meat, fish, fruit and vegetables is 6%. Other food and beverages have a VAT rate of 13% or 23%.

The suspension of VAT on bread, pasta, rice, milk, eggs, yogurt, cheese, vegetable oil, butter, meat and fish is part of a deal agreed Monday night by the Portuguese government with farmers and distributors. This measure will operate from April to October and, together with increased financial support for farmers and livestock producers, will cost the state approximately 600 million euros.

The entire legislative package must also be approved by the Lisbon parliament, where the government led by Prime Minister Antonio Costa enjoys majority support.

Portugal’s annual inflation rate was 8.2% in February, slowing from a rise of 8.4% in January and lower than the 8.5% inflation recorded in the eurozone in February. On the contrary, food inflation reached 20.1%.

Many Portuguese are struggling to make ends meet due to lower wages than in other Western European countries. Prime Minister Antonio Costa has blamed Russia’s invasion of Ukraine for high inflation and warned that prices will continue to rise even after zero VAT on food comes into effect.

“No one knows how long the war will last, but as long as it lasts, there is a risk that production costs will rise even more,” said the Portuguese prime minister, writes Agerpres with reference to DPA.

Last December, European finance ministers agreed to give member state governments more flexibility over the VAT rates that can be applied to goods and services.

How other European countries are trying to contain the explosion of prices

Faced with rising food prices, European governments are looking for solutions to limit the consequences, especially since some countries are in the pre-election period (as, incidentally, in the case of Romania) and rising food prices threaten the social balance. Greece introduced an anti-inflationary food basket, Hungary introduced disastrous price controls, Spain and Italy reduced VAT.

In Hungary, inflation exceeded 25% in February. In Latvia, 20%. In Lithuania, prices rose by more than 17%, in Slovakia – by more than 15%, just like here. Here we are talking about the general price index, because food prices have risen even more. For Hungarians, products have become more expensive by almost 50%, even though Orbán’s government has tried to introduce price controls. In Germany, food prices have risen by more than 20%. (source: Eurostat)

UNITED KINGDOM: Almost a quarter of families with children say they have experienced food insecurity

The problem is even more difficult for the people of the United Kingdom (elections are ahead in January 2025), where hundreds of thousands of people had nowhere to go and turned to the food bank in the Trussell Trust network. In January 2023, almost a quarter of families with children said they had faced a lack of food during the previous month, according to Food Foundation data cited by the daily newspaper Les Echos.

About 3.7 million children currently suffer from this phenomenon, which consists of limited, insufficient or uncertain access to healthy and nutritious foods. The number of families forced to skip meals has quadrupled across the country. The association is campaigning to help the 800,000 children in England who are not entitled to free school meals despite their poverty.

Sadiq Khan, the Labor mayor of London, has just responded by launching a £130m scheme to provide every primary school pupil with free meals for the next school year. During 2023-2024, more than 270,000 children in the capital should use it.

Portugal: subsidies for poor families and an increase in the minimum wage

In Portugal, the antitrust authority has published recommendations to limit future price increases by increasing competition between companies.

Last fall, the Portuguese government announced a package of 8 measures worth 2.4 billion euros (10% of GDP) to help households cope with rising inflation. The authorities also plan to provide direct support to families – those who earned less than 2,700 euros gross per month will receive 125 euros, plus 50 euros per child.

Greece. Anti-inflation basket: EUR 5.58 per package of 400 g. butter, EUR 2.89 a liter of semi-skimmed milk, EUR 5.42 a pack of 200 gr. coffee

Greece, where elections will be held in July 2023, also introduced an anti-inflation basket: 5.58 euros for a 400-gram package of unsalted butter, 2.89 euros for a liter of semi-skimmed milk, 5.42 euros for a 200-gram package of coffee. Despite the introduction of an anti-inflation basket almost five months ago, Greece cannot contain the rise in food prices.

Marked on the shelves with the blue label well known to Greeks, the “kalathi tou nikokiriou”, “home basket”, has been operating for 19 weeks under a law passed last autumn, according to which the state obliges distributors to offer at least one product at a special price in a certain number of categories – 31 at the beginning, 60 today – at risk of a fine of 5,000 euros per day.

These are butter, eggs, toothpaste, baby diapers, and with the beginning of fasting, frozen seafood and the traditional dessert – halva were added. Next: After 19 weeks since the law went into effect, of the 1,134 products, 101 (8.91%) increased, 106 (9.35%) decreased, and 927 (81.75%) remained stable. The issue is even more sensitive in Greece, as the country suffers from structural weaknesses that affect shelf prices, despite having one of the lowest wage levels in the EU.

Hungary is a textbook on economics. So, NO

Freezing the prices of basic food products not only did not stop inflation, but even accelerated it in Hungary.

• “The country has become a laboratory, confirming what all experts have been saying for decades: price freezes are ineffective and ultimately fuel inflation,” said Mateusz Urban, Hungary specialist at Oxford Economics.

In the midst of the election campaign, the nationalist-populist government of Viktor Orbán froze the prices of basic food products: powdered sugar, chicken breast, sunflower oil, milk…

Selling prices for seven products were frozen at October 2021 levels. The list was expanded to include potatoes and eggs. This policy has no analogues in Europe. This strategy may have contributed to the re-election of Viktor Orbán, but it has not protected Hungarians from rampant inflation.

At the beginning of the year, it exceeded 25%, which is a record for the EU. If we talk only about food prices, the country is among the five countries in the world where inflation was the highest. Worse “indicators” are shown only by Zimbabwe, Rwanda, Egypt and Lebanon.