The extraordinary Council of Ministers agreed on Friday to a massive reduction in energy taxes. The main measure will consist of lowering the VAT rate from 21% to 10% for gasoline, diesel, electricity, and natural gas. Prime Minister Pedro Sánchez has estimated the investment for this emergency plan at 5 billion euros, which will consist of 80 measures aimed at protecting 20 million households and three million businesses.
The session began more than two hours late due to disagreements among coalition partners. Sumar has made its support conditional on the inclusion of limits on corporate profit margins and a rent freeze. Finally, the government will divide the measures into two separate decrees to facilitate their passage through parliament.
Two key decrees: gasoline and rent
The first decree will include the reduction in VAT and the excise tax on hydrocarbons, along with a new mechanism to control corporate profit margins. This latest demand from the minority partner aims to prevent energy companies from absorbing the tax savings rather than passing them on to the final price. Currently, gasoline costs 1.709 euros per liter and diesel 1.837 euros.
The second bill will include the extension of 600,000 rental contracts set to expire in the coming months. However, this measure will face legislative uncertainty, as Junts has stated its intention to reject it during the ratification process in the Congress of Deputies.
Response to the international crisis
Sánchez stated that Spain will show greater resilience than other neighboring countries in the face of the economic crisis caused by the situation in Iran. The Prime Minister expressed his dissatisfaction with the current international situation, which he described as the result of decisions made outside the country.
The response plan will also include the suspension of the tax on the value of electricity production, which imposes a 7% levy on power generation companies. With this legal framework, the cabinet will seek to contain inflation and ensure the economic viability of Spain’s productive sector amid high volatility.
