The first measures approved by the government to ease the impact of the energy crisis on Spaniards’ pockets have been in effect for more than two years. In addition to reducing taxes on electricity and gas, and taking into account the impact of inflation on food, the executive branch advocated reducing the value added tax (VAT) on basic products. All these changes cost the state treasury dearly. 1.995 million euro between January and September.

Given the moderation of energy prices compared to the historical highs recorded in the summers of 2021 and 2022, as well as doubts about the effectiveness of measures that apply equally to people of different incomes, organizations such as the Organization for Economic Co-operation and Development (OECD) and the Bank of Spain have called on the government to begin reversing these tax cuts.

According to the monthly report of the Agency for Public Administration of Taxation (AEAT), the reduction in VAT on electricity, natural gas, wood and pellets has led to the fact that revenue from this tax has decreased by 701 million euros during the period from January to September.

The reduction in the VAT rate on food resulted in a loss of €1.294 million for the same period. In this sense, Both anti-inflation measures subtracted $1.995 million from Internal Revenue Service revenues.

In addition to the cost, the measure has been criticized for not doing enough to curb prices. In fact, the Facua report concludes that 52% of food products with reduced VAT became more expensive than when this measure came into force. As the consumer organization reminds, these products cannot increase in price if there is no increase in costs.

Of the 505 food products analyzed that increased in price, 153 were fruits or vegetables, 103 were olive oil and 73 were milk and dairy products. Rice, pasta, legumes, eggs, flour and bread also increased their cost to the end consumer on some shelves.

Deficits and inflation

In addition to these tax cuts, the government also approved a fuel bonus, which was criticized when it was shown to benefit people with the highest incomes most since these are the people who also use cars the most. Moreover, they do not help reduce the consumption of these polluting energy sources and do not help reduce inflation unless their demand is discouraged.

Now OECD warns that since the coronavirus crisis, public debt has risen sharply and economies, including Spain’s, must move towards fiscal consolidation that will allow it to cover pension costs. For this reason, the organization was strong in its latest report. These measures “must end now” and “there is room to increase VAT, environmental taxes and other special taxes that are below the European average,” the document says.

The head of the Bank of Spain recently spoke in a similar vein: Pablo Hernandez de Cos. Hernandez de Cos called for “more targeted” measures to target vulnerable groups while proposing a “more restrictive” fiscal policy for 2024, when the European Union reinstates the stability pact and fiscal rules that limit deficits, the banking watchdog stressed. and government debt.

Inflation measures in 2024

While the government is in power, no significant changes are expected with regard to these measures, which each month represent efforts to increase government spending in the short term. Vice President of the Executive Branch and Minister of Economy, Nadia CalvinoHe noted that at the end of this year, these tax cuts will be assessed and a decision will be made on whether to extend or eliminate them.

It should be noted that these policies are not included in the budget plan that Sánchez sent to Brussels, which outlines the main lines that should reflect the general government budgets (PGE). However, the government indicated that “this does not mean that in the future they will not be able to introduce or extend measures in force until 31 December 2023 to mitigate the impact of inflation in the event that it is deemed necessary after assessing the situation with the data available at the end of the year”.