The final inflation data in April, confirmed this Thursday by the National Institute of Statistics (INE), partially enables the deactivation clause that the Government included in the response plan to face the economic impact of the crisis. The mechanism conditioned the continuity of the energy tax cuts to the evolution of prices in April, in such a way that if each component did not exceed certain thresholds, the aid would automatically decline starting in June. The figures published by the INE leave a mixed scenario. The measures linked to fuel will remain in force until June 30 – regardless of whether they may be extended later – while those associated with electricity and natural gas will be withdrawn as of June 1.
General inflation moderated in April to 3.2% year-on-year, two tenths less than in March, while core inflation fell to 2.8%. According to the Government, this evolution reflects the cushioning effect of both the anti-crisis package and the high penetration of renewable energies in the electrical system. This drop in prices is what now precipitates the withdrawal of part of the aid.
Light and gas
From June 1, the VAT reduction on electricity, which had dropped from 21% to 10%, will no longer be applied; the reduction to 0.5% of the special tax on electricity and the reduced VAT for natural gas, pelletsbriquettes and firewood.
The Government will maintain, at least until June 30, the temporary suspension of the tax on the value of electricity production (IVPEE), the 7% tax paid by generating companies and which is usually transferred to the final price of electricity.
Fuels
The scenario is different in the case of fuels. The annual variation in fuel prices collected by the INE far exceeds the 15% threshold set in the royal decree law, which served as a limit to deactivate the discounts. Therefore, having become more expensive, the main tax measures for gasoline and diesel will continue in force during June.
These include VAT reduced to 10% for gasoline, diesel and biofuels; the reduction of the special tax on hydrocarbons to the minimum allowed by the European Union; and the partial return of professional diesel for transporters. The Executive maintains that, without these measures, fuel inflation would have reached 28.9% in April and that the plan has allowed it to be moderated by more than 16 percentage points.
Beyond these modifications, the rest of the response plan will remain operational. Direct aid to farmers, transporters, ranchers and fishermen remains; the reinforcement of the social electricity bonus ―with discounts of 42.5% for vulnerable consumers and 57.5% for severely vulnerable consumers―; bonuses for the electro-intensive industry; the facilities to adapt energy contracts and tax deductions linked to electrification and renewables, such as the installation of solar panels, heat pumps or charging points. The cap on the price of the butane cylinder will also continue and the reinforcement of supervision by the National Commission of Markets and Competition (CNMC), which monitors that the tax reductions on fuel are not transferred to the final price.
