Spain approves € 3b tax relief to combat inflation

Spain’s government has approved an inflation relief package worth nearly 3 billion euros ($3.21 billion), which includes measures like a lower income tax for minimum-wage workers and the extension of zero value-added tax (VAT) on basic food items.

Budget Minister Maria Jesus Montero announced that the income tax cut will cost the Treasury 1.4 billion euros, while extending the 0 per cent VAT on essential foods will cost 1.36 billion euros.

Starting after September 30, Spain will gradually revert to the previous 4 per cent VAT on basic foods, beginning with an increase to 2 per cent.

The zero VAT policy, introduced in December 2022 to counter a cost-of-living crisis caused by soaring energy prices due to the war in Ukraine, had originally been set to alleviate inflation that peaked at 10.8 per cent in July 2022. As of last month, the EU-harmonised 12-month inflation rate stood at 3.8 per cent.

The government also expanded the list of essential foods to include olive oil alongside bread, milk, fruits, and vegetables. Additionally, the package extends subsidies for vulnerable groups facing difficulties with electricity bills, despite previous electricity tax reductions being gradually reversed in the second quarter.

Further, the cabinet has allocated 626 million euros for new subsidies to encourage the purchase of electric vehicles and continued aid for energy-intensive industries.

Spain aims to lower its deficit to 3 per cent by 2024 to avoid entering the EU’s excessive deficit procedure, supported by stronger-than-expected economic growth projected at 2.5 per cent for this year, following a 0.8 per cent expansion in the first quarter.

Attribution: Reuters.