The fiscal relief measures implemented by the Government to counteract the effects that the war in Ukraine has had on energy prices will not reach 2024. The Executive, according to The country, will inform Brussels that it will eliminate the aid package approved and which included the reduction of taxes on the electricity bill, the strengthening of the thermal and electrical social bonus, the reduction of VAT on gas and basic foodstuffs, as well as as other aid aimed at vulnerable households and the transport sector. It will only maintain the lowering of personal income tax and the free commuter trains.
Despite the concern that this decision may have in the short term on prices – inflation rose to 2.6% in August, but underlying inflation continues to moderate – the Government will not alter the calendar provided for in the decrees approved so far to end to these aids. This measure will mean an increase in tax collection, but could also contribute to an increase in the price of energy. All, in an inflationary context like the current one.
The Bank of Spain has warned that energy prices could see a 25% year-on-year increase in the spring, partly due to the withdrawal of these measures. This could account for around a third of the expected rise in inflation next year, which is estimated at 4.3%.
The withdrawal of these measures is partly due to Brussels’ demands for a gradual return to fiscal stability after the extraordinary expenses caused by the pandemic and the war in Ukraine. Fiscal rules are expected to be reinstated next year, meaning extraordinary measures will have to be withdrawn.
The Government has communicated to Brussels its commitment to reduce the deficit this year to 3.9% of GDP and to cut it by an additional nine tenths in 2024, thus reaching the 3% objective established by European fiscal rules. If this is not achieved, the country could face the consequences of an excessive deficit procedure.
