The VAT reduction on electricity due to the war expires with the moderation of prices

MadridThe moderation of energy prices and, therefore, of the inflation rate in April and May – when it stood at 3.2% – implies that the Spanish government's shock plan approved in March due to the war in the Middle East will follow the planned schedule. Despite the context of uncertainty regarding the evolution of the conflict, starting this Monday, June 1st, some of the tax reductions that have been applied to energy until now will disappear, while other measures will remain in place until June 30th. In any case, families and businesses will already notice this in their electricity and gas bills.

The measure derailed in April after votes against by PP, Vox and Junts in Congress and the abstention of the PNBRegarding fuels, the VAT reduction for gasoline and diesel will be maintained throughout the month of June, which, according to Spanish government estimates, has resulted in an effective reduction of about 30 cents per liter when filling the tank. For professional transporters and the agri-food sector, there is an additional direct aid of twenty cents per liter for the purchase of fuels and fertilizers, and an 80% subsidy on electricity tolls for the electro-intensive industry.

However, aid for vulnerable consumers will continue to be in effect throughout the year with extraordinary discounts on the social electricity bonus – 42.5% for vulnerable and 57.5% for severely vulnerable – and the prohibition of cutting off water and energy due to non-payment for households facing greater difficulties.

From the Ministry of Economy, they defend that, even though part of the shock plan approved to alleviate the economic effects of the war is expiring, a "monitoring" of the economic and social impact of the war in Iran continues, as well as analyzing the measures adopted in conjunction with social agents and the affected sectors to evaluate their continuity or adaptation beyond June 30, when the entire package expires, indicate sources from the Ministry of Economy. "The Spanish government's plan is fulfilling its main objective, which is to cushion the impact of the war on inflation and household purchasing power," they defend from the ministry led by Carlos Cuerpo.

But within the Spanish government, not everyone sees it the same way. Unlike the tone of caution used by the Ministry of Economy, the second vice president and Minister of Labor, Yolanda Díaz (Sumar), believes it is "urgent" to approve a new decree that includes all the measures that have expired. During an intervention this Monday in Congress, Díaz has once again pushed to approve an extraordinary extension of rents that expire this year and next. The measure derailed in April after the votes against from PP, Vox, and Junts in Congress and the abstention of the PNBThe measure derailed in April after the votes against from PP, Vox, and Junts in Congress and the abstention of the PNB.

Uncertain context

"In the coming weeks, new meetings will be held with social agents and the [most affected] sectors to calibrate the support measures that may be necessary [to maintain] once the previous deadline expires," explain sources from the Ministry of Economy. The uncertain evolution of the conflict in the Middle East leads, in fact, to a permanent and mandatory monitoring of prices. If the war in Iran drags on, organizations like the Bank of Spain have warned that the situation could translate, precisely, into upward pressure on inflation. This Monday, and after Iran announced that it was walking away from the negotiating table with the United States, as reported by the Iranian agency Tasnim, the price of a barrel of Brent crude oil, the international benchmark, has once again soared and increased by 5.49%, to $96.12. This is the highest daily increase since April 2nd, when the door was opened to the possibility of negotiation. The price of gold has also risen, and stock markets have registered falls. Iran's representatives will not resume talks with Donald Trump's administration until Israel stops its current offensive in Lebanon.

But while the price of oil continues to push upwards, affecting consumers at the gas station, the prices of food and non-alcoholic beverages have remained flat, according to the latest data from the National Institute of Statistics (INE). This, added to a moderation in electricity prices in the State, clothing and footwear, has favored a stabilization of general inflation.