Spanish Government Eliminates Value-Added Tax on Essential Goods

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On December 27, the Spanish government announced that there will be a new aid package to address the rising cost of living, particularly for food. This package includes the abolition of value-added tax (VAT) on basic food items, such as bread, cereals, cheese, fruits, and vegetables for a period of six months. This is meant to help families financially since the average price of food baskets across Europe has risen by an average of 30% compared to last year. There has been a 52% price increase in cereal and a 42% price increase in milk. VAT will also be reduced from 10% to 5% for oil and pasta. Other products have seen strong increases in prices such as butter, which rose by 37.5%, and sugar, which rose by 50.2%.

However, it is important to note that this tax cut (which went into effect on January 1) has not been applied in all of Spain. For example, it has not been applied in the Canary Islands due to the presence of a separate tax, the IGIC. The IGIC has already levied a 0% tax on these same products for years. The government has not yet proposed any other means of compensating for the increase in food prices in the islands. Furthermore, data from the National Institute of Statistics (INE) shows that food prices in the Canary Islands have increased by 15.1% over the past year, nearly the same as the 15.3% increase nationwide. 

In addition to the tax cut, low-income families (families who earn incomes around 27,000 euros or less), which represents approximately 4.2 million households, will also receive a one-time aid payment of 200 euros. This financial assistance is meant to compensate for the increase in food prices. The government estimates the total cost of this package and the previous five aid packages to be 45 billion euros. 

Additionally, in an effort to combat rising inflation, the Spanish government has introduced several aid packages. These include discounts on fuel for industries such as shipping, fishery, and farming. Despite these efforts, inflation in Spain remains high, reaching 10.8% year-on-year in July and 6.8% in November.

The Spanish government has received some criticism from the political opposition, as well as the Comisiones Obreras trade union regarding these policies. The opposition party, the People’s Party (PP), has criticized the measures and defined them as insufficient. The Comisiones Obreras trade union has also expressed concerns about the insufficiency of the measures and the lack of social dialogue in their development.

Featured image by: Gemma, retrieved from Unsplash

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