The newest government decree aimed at crisis response is forecast to reduce the nation’s total tax intake. An economic impact study prepared for Europa Press projects foregone revenue totaling 10,909 million euros.
To counter the downturn, authorities have introduced relief steps such as free Renfe passes and a 200 euro payment for households earning under 27,000 euros. These measures are expected to exceed 10,000 million euros in cost.
The decree, approved last December and still awaiting congressional confirmation, also broadens or creates new exemptions, prioritizing energy-related areas. These exemptions contribute to lower state revenue. Though the document provides a six month snapshot of revenue effects, most measures are designed to run annually.
1,500 million for VAT on electricity
The decree prolongs the VAT application on certain electricity supplies by 5 percent. The six month cost is estimated at 1,445 million euros on an accrual basis, with annual costs reaching 2,890 million euros for the full period of validity.
A parallel pattern appears with the extension of the Standard Electricity Tax at 0.5 percent, which indirectly taxes electricity use. This policy is expected to reduce annual revenue by 2,298 million euros.
Meanwhile, applying a 5 percent discounted rate to natural gas in the energy sector will create a revenue loss of 433 million euros in the first half, rising to 866 million euros for the year. A similar 5 percent rate for biomass and wood-derived briquettes and pellets used for heating would translate to a loss of 41 million euros in the first six months and 82 million euros per year.
The administration notes that these revenue shifts affect both general state finances and regional authorities because the measures influence VAT and the Electricity Special Tax, with proceeds partly or wholly redistributed to autonomous communities.
Ultimately, the suspension of the Electricity Production Value Tax is extended, producing a revenue loss of 4,112 million euros for the full year.
661 million for VAT on food
While the decree centers on the energy sector, it also includes measures intended to ease household expenses with notable revenue implications. One such measure eliminates VAT on a set of staple foods, including bread, flour, milk, eggs, fruits and vegetables. This change would reduce state revenue by 604 million euros. A further reduction in the tax rate on edible oils and pasta from 10 percent to 5 percent could lead to a revenue loss of 57 million euros in the first half of the year.
Unlike energy measures, the food provisions are not framed as annual commitments. Their duration will hinge on how inflation develops in the coming months. Core inflation, which excludes energy and fresh foods, remains a pivotal reference. If the year-over-year core inflation rate dips below 5.5 percent in March, as reported in April, tax rates could be restored. Core inflation finished 2022 at a 30-year high, with a 7 percent annual rate in December and a 1.3 percentage point gap over the overall CPI in that same month of 2022.
These projections reflect a broader policy approach that weighs short-term relief for households against longer-term consequences for government revenue and public services. The decree ensures that energy subsidies and food tax adjustments are considered together with revenue estimates, acknowledging the interconnected nature of energy prices, household affordability, and fiscal balance.