Spain’s head of government, Pedro Sánchez, opted to use a broad fiscal approach to lower consumer prices. The plan centers on reducing the cost of essentials, a key driver of the current annual CPI, which has risen more than 15 percent year over year. Of the 10 billion euros approved for the new measures, roughly 1.8 billion euros is earmarked for actions aimed at easing the household shopping bill, according to Treasury estimates. This is about one-fifth of the total package.
The most visible components include a 200 euro allowance for households earning less than 27,000 euros, reaching roughly 4.2 million families and totaling about 1.2 billion euros. Value-added tax is suspended on basic food items currently taxed at 4 percent, which covers bread, eggs, milk, cheese, and fruits and vegetables. A six-month VAT reduction from 10 percent to 5 percent applies to oil and pasta, with an estimated additional 661 million euros for this period. Eliminating the 20-cent fuel discount for all users costs around 6 billion euros, while maintaining exemptions for the primary sector and transportation to help finance the core measure aimed at reducing the shopping cart price. The result is meaningful savings for consumers at the point of sale.
A related measure touches housing and, alongside its impact on consumer prices, has become a central topic of negotiation between the PSOE government and its United We Can partners. The agreement includes a six-month extension for expired rental contracts and a 2 percent cap on rent increases through December 31, 2023. Critics warn this could challenge property rights for more than two million landlords. Attention is also drawn to limiting fuel assistance for the primary sector and transport, including goods vehicles, public buses, taxis, ride-hailing services, and ambulances, a development reported by regional outlets of the Prensa Ibérica group.
Sánchez spoke at a press conference after the latest cabinet meeting. The overall effort to counter the impact of the Ukraine conflict totals 45 billion euros, with 35 billion allocated previously and an additional 10 billion in the new package. The aim is to shield the working middle class, reduce electricity costs, promote public transport, and support the most vulnerable. Limited toll increases on state concession highways are proposed; otherwise, tolls would rise by 8.5 percent.
These measures form part of a broader package intended to spur growth in Spain’s economy, with a target to surpass the 5 percent growth mark this year. The government argues that Spain has today exported solutions to inflation and energy challenges across Europe, contrasting it with the past when bailouts were moved through the banking sector.
The administration emphasizes reducing inflation by several points and notes a fall to around 6.8 percent in November, the lowest in the euro area. The measures implemented so far are coupled with efforts to balance energy, banking, and asset taxes that exceed three million euros in revenue. The leadership defends the State of the Nation commitments to provide urgent responses to the war in Ukraine, protect workers, distribute burdens fairly, and enhance energy sovereignty by expanding renewable resources and capping gas prices. The plan includes a 15 percent increase in non-contributory pensions and the minimum living income.
In response to opposition calls for a gas price cap, Sánchez recalled that these strategies align with European action. In recent months, electricity prices have been significantly lower than in some peers, and the plan has yielded substantial savings on household bills, with estimates around 4,000 million euros or about 150 euros per electricity bill for many customers.
Key crisis-management costs include extending the electricity tax relief through mid-2023, maintaining a 5 percent VAT on electricity and a 0.5 percent special electricity tax, and suspending certain electricity generation taxes. The policy also extends VAT to 5 percent for natural gas, pellet fuel, or firewood through the same period. Renfe transportation initiatives provide free Cercanías and Rodalies services, and the state covers 30 percent of urban and intercity transport costs while the autonomous communities subsidize 20 percent of the price. The government highlights labor reforms that have improved conditions for self-employed workers and domestic staff, and reaffirms the Toledo pact commitments, including pension revaluation in line with the CPI. The decree anticipates an 8.5 percent pension increase through 2023.
Sánchez projects that Spain can exceed 5 percent growth this year, outpacing the euro area and many developed economies, with expectations of continued above-average growth next year. The government stresses its readiness to take further measures if necessary. Officials point to 31 billion euros already drawn from European funds and 136,000 projects completed, arguing that these initiatives strengthen regional cohesion and show tangible progress despite challenges. The decree also sets aside up to 450 million euros for direct hotlines for gas-intensive industries and a pre-authorization system for strategic investments.
The overall message stresses a proactive social contract, sustained by dialogue with social partners and a commitment to modernizing the economy while safeguarding households and workers during difficult times. This is presented as a consolidation of reforms aimed at resilience and long-term prosperity for Spain.