THE HIGH COST OF ENERGY: CONSEQUENCES AND INTERVENTIONS OF THE 2023 BUDGET LAW

As also stated between the lines of the previous article, https://bit.ly/3DCTuJg, 2023 will be characterized by an aggravation in terms of costs that will strongly impact the heart of the Italian production sector consisting mainly of SMEs: with an inflation rate of 8.8 percent recorded in 2022 and similar forecasts for 2023 as well, there will be higher operating costs due to the increase in energy and raw material prices, which will generate lower sales revenues due also to the general worsening of consumers' spending capacity in the economy with a consequent reduction in consumption and progressive increase in the propensity to save.

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ECONOMIC REFERENCE SCENARIO

The analysis "The Impact of the Energy Price Race on Production Costs" carried out by Centro-Studi Confindustria during 2022 shows how, "The international economic scenario has been characterized over the past eighteen months by an exceptional upward race in commodity prices, which have in many cases reached unprecedented peaks in recent decades. The price increases have touched several commodities across the board, not only among raw materials (minerals, energy, vegetables) but also semi-processed goods (among foodstuffs, textile fibers, plastics, among others) and have in some cases reached double-digit rises as early as late 2021.

The absolute star of this flare-up in commodity prices has been natural gas, whose price in Europe as early as January 2022 had risen 421 percent compared to December 2019. Remaining in the sphere of energy commodities, oil and coal prices also experienced significant surges, albeit with significantly smaller increases than gas prices (+24% and +122% respectively in January 2022 compared to December 2019).

... Uncertainties about the imbalance between the supply and demand for energy commodities have thus been compounded by an additional critical factor: the indeterminacy about the duration of the energy shock, making the easing of tensions in commodity markets more uncertain and thwarting pre-war expectations of a gradual decline in prices."

The above has generated and will continue to generate an increase in both direct costs, under the heading of energy directly borne by businesses, and indirect costs, by virtue of the increase in raw materials and in general production and purchasing costs that businesses will have to bear in their day-to-day operations.

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REFERENCE FORECASTS

According to Confindustria's Centro-Studi, Italy's GDP will decline during 2023; in fact, the report "Italy's Economy Still Resilient Amid Uncertainty and Shocks?" states that what will negatively weigh on the growth recorded during 2022 will be above all the dynamics of consumer prices in Italy, which have already increased exponentially during 2022, touching values not recorded since 1985. 

Another critical factor that has affected and will continue to affect has been the rise in the price of natural gas in Europe: this has influenced to increase inflation, create a sharp contraction in demand also due to stuck nominal wages and progressively decreasing real wages, a change in consumption habits that has generated an initial purchase orientation on less expensive consumer goods and a consequent progressive reduction in purchases themselves.

At the same time, business investment has also lost and will continue to lose its impact: as also stated in the previous article, another negative factor for investment has been, and will continue to be in the immediate future, the rise in rates, which have a strong impact on the cost of credit. 

Lastly, what has been said has also had a negative impact on exports in the second part of 2022: price increases along international supply chains, cross sanctions with Russia, uncertainty in the global macroeconomic scenario, and the sharp slowdown in international demand (especially in the main outlet markets for Italian goods, such as Europe and the United States) will severely reduce the growth potential of Italian exports with a forecast growth in 2023 of +1.8 percent, compared to higher increase of 10 percentage points in 2022.

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INTERVENTIONS OF THE BUDGET LAW 2023

Given what has been said so far, the Italian Council of Ministers has planned a series of measures to try to curb such negative impact of rising energy costs on the Italian economy: in fact, in the "Budget Law 2023" a "package" against high energy prices has been approved.

Specifically, two main lines of action were provided:

the first is the tax credit for energy-intensive companies, a measure included in order to restore the cash flow of companies, specifically. 
1) increases from 40% to 45% the tax credit in favor of energy-intensive companies, a credit to be applied to expenses made for the energy component purchased and actually used in the first quarter of 2023;

2) increases from 30% to 35% the tax credit in favor of enterprises with electricity meters of 4.5 KW or more (other than the enterprises of point 1), again to be applied to expenses incurred for the purchase of the energy component actually used in the first quarter of the year 2023;

3) increases from 40 to 45% the tax credit in favor of natural gas-intensive enterprises to be applied to expenses incurred for the purchase of natural gas consumed in the first quarter of 2023;

4) increases from 40 to 45 percent the tax credit in favor of non-gas-intensive enterprises to be applied to the purchase expenses of natural gas consumed in the first quarter of 2023.

The second provides incentives for companies toward investments in renewable energy sources; mentioned is the refinancing of the Green New Deal Fund for 565 million euros for 2023, an intervention plan to support companies investing in research, development and innovation projects for the ecological and circular transition. The measure provides grants or subsidized financing from €3 million to €40 million to support industrial research, experimental development and, for SMEs, industrialization of research and development results consistent with the purpose of ecological and circular transition.

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THE ROLE OF THE PROFESSIONAL 

The objective of these interventions turns out to be clear: to safeguard departments in crisis and to support our country's strategic sectors with tools that look both at the short term, as in the case of tax credits, and at the long term, as in the case of incentives that stimulate energy independence and the development of renewable energy. 

Therefore, the role of the Certified Public Accountant turns out to be crucial in assisting Italian SMEs in this delicate phase, both in carrying out the bureaucratic tasks to benefit from tax credits, and in starting the process of energy independence and sustainability of Italian companies in the long term, intercepting the important resources made available in the various calls for proposals, sources of significant boost to investments in Italy, as well as helping corporate management to operate with a strategic vision that, more than ever before, must be really shrewd and far-sighted.

 

Edited by: Antonio Russo, Chartered Accountant and Statutory Auditor

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For more information:

antoniorusso@valoreassociati.it