The government approved on Tuesday a VAT reduction to 0% for staple foods such as bread, eggs, vegetables, and fruit, and for olive oil until September 30, while the rate will rise to 2% from October 1 to December 31, a move aligned with forecasts that food inflation will ease in the final quarter. The first deputy prime minister and finance minister, Maria Jesus Montero, outlined in the cabinet press conference the royal decree extending measures to address the economic and social repercussions of the conflicts in Ukraine and the Middle East. A notable feature of the decree is that the VAT on olive oil, which had already fallen from 10% to 5%, will drop to 0% from July 1 and remain there through September 30. After that, it will sit at 2% from October 1 to December 31.
Furthermore, the minister announced that this product will from now on be part of the basic goods basket, guaranteeing it a super-reduced rate.
The super-reduced rate in Spain stands at 4%. This means that when normal rates resume, olive oil VAT will be 4% rather than the 10% previously applied during the extended period.
“An acknowledgment of the importance of olive oil in the Mediterranean diet, a healthy diet, and a way to support a market that has faced significant challenges in recent years mainly due to drought,” Montero emphasized, noting the need to protect this market and this product as one of the nation’s most valued assets.
The decree also extends the 5% VAT rate for pasta and seed oils until September 30. From October 1 to December 31, in line with European Commission recommendations for a gradual withdrawal of crisis-era measures, the rate will be 7.5%.
Rebate of personal income tax for 5.2 million people
Another measure included in the decree is a reduction in the personal income tax (PIT), which will prevent workers earning the minimum wage from paying income tax.
Previously, the government had already adjusted PIT regulations to stop these workers from facing monthly withholdings starting in 2024. The new law incorporates this adjustment into the PIT statute itself.
Last year, the minimum threshold for applying withholdings rose from 14,000 to 15,000 euros. It is now increased again to 15,876 euros, equivalent to the annual minimum wage. “Therefore, workers earning this salary will not have PIT withholdings, nor will they owe tax later on,” the minister confirmed.
However, the beneficiaries extend beyond those earning the minimum, due to the progressive nature of the tax system, with the relief reaching incomes up to 22,000 euros.
Overall, the government estimates that this PIT relief will benefit 5.2 million taxpayers, especially low- and middle-income employees and pensioners, delivering a relief of 1.385 billion euros.
Together, the VAT and PIT measures in the royal decree represent an annual saving of about 3 billion euros for families.
“In other words, low and middle incomes will pay less tax under this progressive government than they did under the earlier administration,” the minister remarked.
Regarding vulnerable groups, the government renewed the social shield, maintaining a ban on cutting water and electricity supplies to vulnerable households and extending electricity bill discounts until June 30, 2025, to cover the coming winter. The decree also grants indefinite status to the last-resort tariff for natural gas.
“The biggest tax cut in history”
Montero described the decree as part of a broad, sustained policy of support for families, households, and the productive sector, particularly small and medium-sized enterprises and the self-employed, implemented since 2020. The measures in place since 2020 total more than 120 billion euros.
Additionally, the minister highlighted that the government has delivered the largest reductions in energy taxes and in VAT, resulting in substantial savings for households. Despite criticism from some political groups, she stressed that these are historically significant tax reliefs that have lightened the financial burden on many families.
Cited as proof of effectiveness, these measures aim to shield households from shocks while supporting the economy through periods of volatility and external pressure, ensuring that essential goods and energy remain accessible to the broad population. The decree’s framework seeks to balance short-term relief with long-term fiscal responsibility, maintaining a steady course for household finances and market stability alike.