HomeNewsCost of living crisis: what are the rest of the G7 doing?
Cost of living crisis: what are the rest of the G7 doing?
September 23, 2022
As Liz Truss’s government prepares to unveil a huge package of tax cuts, alongside energy price caps for UK households and businesses worth an estimated £150bn, here is what the rest of the G7 are doing to ease the cost of living crisis.
French ministers argue that France has been the most generous country in Europe in helping households cope with the cost of living crisis, namely by capping gas and electricity price increases. Until the end of this year, gas prices will remain frozen and price increases for electricity will be capped at 4%. At the start of next year, electricity and gas price increases for households will be capped at 15%.
Last month, the French parliament approved a wide range of new measures for households as surging inflation erodes wages. These include raising public sector pay, increasing pensions and some welfare payments by 4%, placing a cap on rent increases at 3.5% for existing tenants in mainland France, and raising means-tested student grants.
The government has also subsidised a rebate on petrol and diesel prices. Initially worth 18 cents a litre, this has been raised to 30 cents in September and October, and will then drop to 10 cents from November.
Companies are being encouraged to offer employees an annual tax-free bonus of up to €6,000 (£5,240), raised from a previous limit of €1,000. Employees covered by the 35-hour working week will be able to convert overtime days into extra cash.
The government has also scrapped the TV licence (€138 a year in mainland France).
Last December, the government gave one-off €100 payments to help low-income families deal with rising fuel prices. In September, the government gave an “exceptional” handout of €100 – plus €50 for each child – to low-income families on welfare benefits.
Since autumn 2021, the cap on gas and energy prices, including fuel rebates, have cost the French government €24bn. France is also to fully renationalise its indebted electricity giant, EDF, in response to the energy crisis.
The Italian government has allocated €59.2bn since last September to shield households and businesses from soaring energy prices, with the latest €14bn tranche being announced by the prime minister, Mario Draghi, last week.
He said the package put Italy “among the countries in Europe that have spent the most” in tackling the issue. Measures include boosting and extending until November tax credits for energy-intensive firms, relief for small to medium-sized businesses and more financial support for low-income families.
The scheme will also provide a one-off €150 handout for 22 million workers and pensioners who have an annual income of below €20,000. Meanwhile, a cut in excise duty on petrol will stay in place until the end of November. Draghi said the government is “helping families and firms without putting public finances at risk and causing tensions on the markets”.
However, a new government will be responsible for seeing the measures through, tackling the cost of living challenges over the coming winter, after elections on Sunday. A coalition made up of the far right Brothers of Italy, League and Silvio Berlusconi’s Forza Italia is forecast to win the vote and is expected to renew at least some of the measures to see Italy through the winter.
A total of three relief packages have been announced by the German government so far to help consumers and companies cope with inflation that stood at 7.9% in August.
Totalling more than €95bn, and split between the federal government, the 16 states and municipalities, the measures include a one-time lump sum payment of €300 for pensioners and a September tax rebate of the same amount for people in regular employment, a one-time lump sum payment of €200 for university students, increases in rent subsidies to cover rising heating costs, a €500 increase in welfare payments, a one-off €100 bonus per child and a permanent €18 per child increase in monthly child benefits.
Germany is also shifting the income tax bracket to prevent increased tax liabilities, expanding state lending facilities to help otherwise healthy companies, and extending a heavily subsidised public transport ticket scheme (still to be hammered out).
It also includes backing an EU effort to curb profits at energy companies (under discussion), as well as measures to rein in the huge pace at which electricity bills are going up, and a delay in implementing a planned rise in carbon emission prices in 2024.
The government has promised to “do everything possible to ensure energy provision continues to function”. This has included its decision this week to nationalise the energy provider Uniper, at a cost of €29bn, on top of the €11bn it has already injected into two other gas importers.
Japan’s prime minister, Fumio Kishida, has seen his approval ratings plummet over rising prices and revelations about his party’s ties to the Unification church in the wake of Shinzo Abe’s assassination.
After decades of deflation, households in the world’s third-biggest economy have been hit by a rise in energy bills and, by next month will be paying more for an additional 6,500 food items – including daily staples such as bread and noodles – . While the rise in inflation has been modest compared with many other countries, consumer inflation has exceeded the Bank of Japan’s 2% target for five straight months.
In an attempt to soften the blow, Kishida has said the government will aim to maintain the price of imported wheat at current levels and consider retaining subsidies to oil wholesalers to stabilise petrol and kerosene prices. He has called for nuclear reactors that have passed post-Fukushima safety tests to be restarted to meet the expected surge in demand for electricity this winter.
The Bank of Japan’s decision to retain ultra low interest rates – a stance it stuck with on Thursday – has helped drive the yen to a 24-year-low against the US dollar, fuelling the rise in the cost of imported fuel and food.
In response, the government on Thursday intervened in currency markets for the first time since 1998, and is likely to submit a supplementary budget in the coming weeks that could include at least $105bn in fresh spending that targets struggling retailers and households.
The Canadian prime minister, Justin Trudeau, recently announced new measures to help with the sharp rise in living costs across the country, including the worst surge in grocery prices in four decades. His government has increasingly faced political pressure to help the hardest-hit citizens as inflation amplifies an ongoing affordability crisis.
Trudeau expects parliament to pass the new measures in the coming weeks, including a one-time benefit of $C500 for low-income renters. A six-month doubling of the sales tax rebate for low income earners is expected to affect at least 11 million Canadians. A new dental care programme for children in low-income families will be rolled out, giving families C$1,300 per child over two years. Canada’s intervention will cost C$4.5bn.
Most of the measures had been pushed by the leftwing New Democratic party, which agreed to keep Trudeau in power until 2025 in exchange for social programme that benefit vulnerable and low-income populations.
Canada’s inflation rate eased to 7% from 7.6% a month earlier as gas prices dipped but food costs remained elevated.
“While we’re headed in the right direction, that’s still too high,” Paul Beaudry, the deputy governor at the Bank of Canada, said in a recent speech.
One issue is top of US voters’ minds as Joe Biden fights to hold on to Congress in November’s midterm elections: the cost of living crisis.
Inflation is now running at rates unseen since the 1980s, driving up the cost of everything from food and shelter to cars and medical care.
The Federal Reserve has led the fight to tamp down prices, announcing a series of unusually large increases in interest rates in the hope of slowing the economy and returning inflation to its target rate of 2% from its current level of 8.3%.
But the Biden administration has a series of plans of its own, many inspired by the supply chain problems that arose during the coronavirus pandemic, that are aimed at making the US more resistant to sudden swings in prices.
The plans include the Inflation Reduction Act – expected to cost $437bn over 10 years.
It will lower prescription drug and health care costs and increase spending on green energy technologies. The plan also includes spending $52bn to boost domestic production of semiconductors. Semiconductor shortages led to rises in the price of everything from cars to mobile phones during the pandemic.
Biden has also approved releasing 1m barrels of oil a day from the Strategic Petroleum Reserve – the US’s enormous underground stockpile of oil – to bring down gas prices.