After the decree law No. 8/2023, approved by the Council of Ministers in December, received support from the Congress of Deputies by a narrow margin this Wednesday, the tax reductions and benefits planned for 2024 will be continued and expanded. The package, listed as a 140-page megadecree, aims to reinforce inflation relief and social shield measures that the administration has pursued since the pandemic and the ensuing Russian invasion of Ukraine.
The Congress approved the aid package and tax cuts totaling 5 billion 300 million euros, prepared by the manager, and they are expected to move forward as a legislative draft. This development followed discussions in the Turkish Grand National Assembly about possible amendments from opposition sides.
For the decree to pass, it was crucial that the seven deputies abstained after the government committed to lowering oil VAT from 5% to 0% and covering the full cost of discounts and bonuses on public transport fares. The government also pledged immediate publication of financial alliances.
Congress also approved omnibus decree No. 6/2023, which includes civil service reforms and tax incentives for patronage. It is anticipated to proceed as a bill.
Meanwhile, Congress rejected royal decree 7/2023, which proposed introducing new unemployment benefits from June. The decisive factor was the negative vote from Podemos MPs.
The consequences of rejecting this decree at that moment include potential delays in unemployment policy changes and the risk to planned adjustments.
New unemployment benefit on the agenda
Congress overturned the decree regulating reforms to unemployment benefits for those who have exhausted their contributions. The impact will not be immediate, as the new subsidy is set to take effect on June 1. There may be room for negotiations with Podemos in the months ahead on expanding social contributions and the number of beneficiaries aged over 52 who qualify for the benefit. The negative vote by Podemos, supported by Vice President Yolanda Díaz, proved pivotal in overturning the decree. The administration may advocate maintaining the current framework that provides up to 125% of the inter-occupational minimum wage to unemployed individuals over 52 who receive subsidies, even as the executive order reduces this rate to 100%.
The reform proposed by the Labor Party would set subsidy amounts at up to 570 euros in the first six months, 540 euros in the next six months, and 480 euros thereafter. The plan also considered harmonizing employment and social rights with a 180-day framework plus a one-month period for processing aid. In any case, the unemployment benefit is slated to remain unchanged until June 1.
Another concern is that failing to approve the decree would delay the introduction of a breastfeeding leave regulation. Practically, this would allow workers with newborn children to concentrate on their current one-hour daily leave and still obtain breastfeeding leave of up to 28 consecutive days or in two portions of 14 days, or according to flexible enjoyment options.
Food VAT: A further step toward relief for basics
With the Anti-Inflation Decree approved, the VAT reduction on basic foods was extended through June. Bread, eggs, and milk will continue to be taxed at 0%. In addition, flours, cheeses, fruits, vegetables, legumes, potatoes, and grains are included. The VAT rate on oils remains at a reduced level and the move to 0% follows an agreement with Junts.
Widows’ pensions and indexation
The approval of Royal Decree 8/2023 by the Congress leads to a 3.8% increase in all contributory pensions, effective January 1, driven by automatic revaluation linked to the CPI under the Social Security reform. If the decree had not passed, a new presidential order would have been required to implement this increase.
Additionally, non-contributory pensions see increases: a 14% rise for widows and a 6.9% rise for old-age and disability pensions, effective January 1, 2024.
Energy measures: no changes from the plan
The government’s strategy to raise electricity VAT continues with the decree 8/2023. The VAT on electricity goes from 5% in 2023 to 10% through 2024, staying below the 21% level seen in 2021 during the inflation spike. The Special Electricity Tax (IEE) will rise from 0.5% to 2.5% in the first quarter and to 3.8% in the second quarter. The IVPEE rate will be 3.5% until March and 5.25% until June.
For natural gas, VAT will move from 5% to 10% in the first three months of 2024, returning to the typical level of 21%. Protection for the most vulnerable consumers remains in place, including safeguards against supply disruptions and continued discounts for electricity and heating subsidies, with the three existing eligibility categories kept intact.
The decree, approved by the government on December 27 and endorsed by the Congress this Wednesday, also expands the growth cap for the regulated gas tariff and related discounts for heavy electricity users and nearby communities, covering up to 80% of electricity-intensive company tolls and up to 55% of domestic customer charges.
Evictions, mortgages, and a consumer safeguard
The anti-crisis decree passage allows for a temporary suspension of evictions for vulnerable households and confirms there is no housing alternative crisis. The government also moved to eliminate cash withdrawal commissions for the elderly and disabled at banks, along with penalties for early loan repayments tied to variable rates.
These measures reflect a broader strategy to shield households during economic volatility and provide targeted support where it is most needed. Citations: government announcements and parliamentary records.