The Council of Ministers is set to approve the third aid package on Tuesday, December 27, with a January 1 effective date. The goal is to ease the economic and social fallout from the war in Ukraine and to address the rise in food prices through a package of targeted measures.
Following the final Cabinet meeting of 2022, Prime Minister Pedro Sánchez is expected to address the press, detailing the crisis response package and providing an assessment of prices to understand whether inflation remains at historic highs in the wake of the conflict that began under Vladimir Putin’s leadership.
Spain has managed to temper inflation recently and currently holds one of the lowest inflation rates in the euro area. Nevertheless, the government has decided to push forward a third set of relief measures to respond to the present situation. The plan revisits some programs already in place, extending them beyond their December 31 expiry, and adds new initiatives aimed primarily at easing household expenses.
Additionally, Sánchez noted that the new package will include support for energy-intensive sectors, including those in the gas and ceramic industries.
VAT cuts and a €300 relief payment
One of the central elements of the decree to be approved by the Council of Ministers next Tuesday is the reduction of value-added tax on certain grocery items to lessen the impact of rising prices. Sources close to the negotiations told Europa Press that a VAT cut on selected foods is the most likely option, potentially lowering the rate to 4% from the standard rate of 10% or even higher for some categories.
In the current Spanish VAT framework, basic food items for humans or animals fall under different rates. Most staples like milk, eggs, fruit and vegetables, bread, and legumes are taxed at the highly reduced rate of 4%, while other foods sit at the 10% rate. Some items do not fit neatly into these categories, and foods such as certain sugary products or alcoholic beverages can be taxed at the general 21% rate.
Alongside the VAT relief, Ione Belarra of Podemos announced that negotiations yielded a relief payment of about €300 as part of the anti-crisis measures. The aim is to ease shopping costs for roughly eight million people.
Extension of measures
Even as the government steers the 2023 General State Budget negotiations, it indicates that many of the relief measures currently in place will continue. Finance ministry officials say that the administration plans to extend the existing protections to prevent gaps in coverage.
The only notable exception in the upcoming year is the free fare for Cercanías and regional trains for frequent travelers, which is projected to reach about €660 over the course of the year.
Among the measures anticipated to be extended are the 2% cap on rental income updates and a 15% increase linked to the General Government Budget negotiations with EH Bildu to preserve support for non-contributory pensions and other vulnerable groups.
On the tax front, the government has pushed a package of steps to curb electricity price increases. VAT on electricity consumption was trimmed from 10% to 5% for standard usage up to a contracted power level of 10 kilowatts, while a temporary 0.5% tax on the electricity sector and the suspension of the electricity production tax are being maintained. These tax relief measures reduced state revenue by about €6.436 billion compared with the previous year, according to the latest figures from the tax authority.
In a prior package, the government introduced a temporary 15% boost to the Minimum Vital Income, restrictions on electricity, gas and water suspensions, direct payments of €200 for workers and the unemployed registered with employment services, and a cap of €19.55 on butane cylinder prices through year-end. These steps were designed to cushion households from rapid price moves.
Fuel discount question
One of the most debated measures is the potential extension of the 20-cent-per-liter fuel subsidy. While the government has not finalized the plan, Nadia Calviño, the Vice President and Minister of Economic Affairs, has acknowledged concerns about the policy’s cost and its distribution across different consumer groups. The discussion centers on whether the subsidy truly benefits the most vulnerable or simply reduces fuel spending for a broad audience.
Gas stations weigh the future of the bonus
Calviño described the subsidy as a precautionary measure but noted that it has drawn strong scrutiny because it does not necessarily promote long-term savings in fuel consumption. She compared it with discounts on public transport for regular travelers, which she views as a more sustainable option and suggested the possibility of extending such alternatives through 2023.
The government’s economic team is weighing whether the subsidy should be maintained across all sectors or directed specifically at the most affected groups and essential services. The focus remains on balancing immediate relief with incentives to reduce demand for fuel where feasible.