Spain is set to cut a range of taxes to ease the economic impact on its citizens from the ongoing war in Iran.
The PSOE-led government is expected to cut fuel VAT from 21% to 10% in a bid to shield households and businesses from soaring energy costs.
The emergency move will be approved at an extraordinary Cabinet meeting this Friday, alongside a wider package of economic measures designed to soften the blow of rising fuel and electricity prices.
According to government sources, ministers will also reduce the special hydrocarbons tax, aiming for an immediate impact at the pump after weeks of sharp increases.
No return to 20-cent fuel discount
However, the government has ruled out bringing back the blanket 20-cent-per-litre fuel subsidy seen during the Ukraine war.
However, insiders say a targeted version of the discount could return – but only for transport workers and farmers, two sectors hardest hit by rising costs.
Electricity bills also set to fall
The package doesn’t stop at petrol and diesel.
Ministers are also preparing to cut electricity taxes, including a reduction in the electricity tax (currently 5.11%), alongside a temporary suspension of the 7% tax on energy production.
Both measures are expected to bring immediate relief to household energy bills, long criticised by both consumers and industry.
Political tensions delay announcement
The plan has already sparked tensions within the coalition government.
Ministers from junior, hard left partner Sumar reportedly delayed the meeting in a push to include housing measures and limits on corporate profits – proposals that were not initially part of the plan.
While housing has been left out for now, the government is considering expanding parts of its ‘social shield’.
This could include a ban on cutting off energy supplies to vulnerable families and increased electricity discounts for low-income households.
Under the proposals, discounts could rise to 42.5% for vulnerable households (up from 35%) and 57.5% for severely vulnerable households (up from 50%).
No VAT cut on food for now
Despite pressure from the opposition, the government is not extending VAT cuts to food at this stage, opting instead to monitor price trends.
Officials also admit previous fuel subsidies delivered mixed results, influencing the decision to focus on tax cuts instead.
Push towards energy independence
Alongside emergency relief, the decree will include longer-term measures aimed at accelerating renewable energy projects, expanding energy storage infrastructure and encouraging electric vehicle adoption through tax incentives.
The broader goal is to reduce Spain’s dependence on fossil fuels at a time when global oil and gas markets are being rocked by geopolitical tensions.
Read more Andalucia news at the Spanish Eye.
