Spain's VAT Reduction On Food To Remain In Effect Past June

Spain's economy minister, Nadia Calvino, announced on Monday that the country will not reintroduce the value-added tax (VAT) on essential food items until price levels are deemed "more appropriate." In an effort to alleviate the financial burden caused by rising food prices, the government had previously eliminated the 4 percent VAT on staple foods such as bread, cheese, milk, fruits, vegetables, and cereals starting from January 1. This move was part of a comprehensive 10 billion euro package that was approved in December, aimed at mitigating the impact of price increases on consumers. However, the VAT exemption was set to expire at the end of this month.

Despite the approaching deadline, Calvino provided reassurance that the government is committed to maintaining the reduced VAT rate on essential food items. Additionally, they are actively assessing other potential measures that could be extended beyond June to support consumers. The focus is on implementing strategies that will keep prices manageable and accessible for the general population.

Calvino emphasised that the decision to continue the VAT rebate on basic foodstuffs hinges on the attainment of price levels considered more suitable for consumers. The government aims to strike a balance between ensuring affordability and safeguarding economic stability. Calvino further underscored Spain's notable achievement in curbing inflation, with a remarkable 5-percentage point decrease over a span of five months. This progress has positioned Spain among countries with the lowest inflation rates.

The encouraging trend of decreasing inflation is projected to persist throughout June, as indicated by the available data. Spain has experienced a significant drop in the inflation rate, with figures hovering around 3 percent. This figure becomes even more favourable when harmonised with the data from the entirety of Europe. The ongoing decline in inflation underscores the positive trajectory in Spain's economic landscape.

Recent statistics from the National Statistics Institute (INE) shed light on the challenges faced by consumers. Food and non-alcoholic beverage prices witnessed a substantial increase of 12.9 percent in the 12-month period through April. This growth rate exceeded the previous 12-month period by 3.5 percentage points, indicating the severity of the price surge.

In addition to maintaining the reduced VAT rate on essential food items, the Spanish government has implemented other measures to combat rising inflation. These initiatives aim to alleviate the financial strain on citizens and ensure their access to affordable goods and services.

One such measure is the automatic extension of rental contracts. This provision allows tenants to continue their rental agreements without facing sudden rent increases, providing stability and relief amidst escalating prices.

To further assist the public, the government has also taken steps to reduce municipal and regional public transport costs. As part of this effort, free train tickets are being offered on Cercanías, Rodalies (Catalonia), and Media Distancia, along with select bus lines. The implementation of this free ticket system has been well-received by the public, with over 2.4 million season tickets issued, highlighting its effectiveness in supporting individuals during these challenging times.

However, it remains unclear whether the 50 percent discount on season ticket prices for urban public transport, specifically local metro services, will be extended across all regions. Initially, the government had agreed to provide a 30 percent discount, while each region had the option to contribute an additional 20 percent, resulting in a total discount of 50 percent. Currently, this discount is only available in certain regions and on specific tickets.

Furthermore, its continuation beyond June 30th has yet to be confirmed, leaving its future implementation uncertain.

These measures collectively demonstrate the government's commitment to addressing inflationary pressures and prioritising the well-being of its citizens. By extending rental contracts, providing free train tickets, and reducing public transport costs, the government aims to alleviate the burden on individuals and ensure their access to essential services during a period of economic challenges.

Sources

https://www.esmmagazine.com/retail/spain-wont-reinstate-vat-on-basic-foods-until-price-rises-ease-says-minister-242725
https://www.thelocal.es/20230613/spain-to-maintain-vat-reduction-on-food-beyond-june