Madrid, Spain. Spain will reduce value-added tax on fuel products to 10% from 21% and suspend the excise duty on hydrocarbons as part of measures to cushion the economic blow from the Middle East conflict, SER radio station reported.
Reported tax measures
SER reported, citing sources familiar with the plans, that suspending the excise duty on hydrocarbons would lead to an immediate reduction in the price of diesel and petrol of between 0.30 euros and 0.40 euros ($0.35-$0.46) per litre.
The report also said the government will eliminate a 5% tax on electricity consumption.
Government response and timing
A government spokesperson declined to comment ahead of a press conference announcing the measures, set for 11 a.m. local time (1000 GMT).
European context and inflation expectations
European countries, heavily dependent on energy imports, are taking action to curb an expected rise in inflation. Financial markets expect euro zone inflation to climb nearly 4% over the next year, then take years to return to the European Central Bank’s 2% target.
Italy on Wednesday cut excise duties on fuels by 25 cents per litre, and Germany is considering a support package including a windfall tax on oil companies.
Distributional impact and broader package
The reported measures could help prevent sharp rises in fuel prices from causing inflationary pressure on other goods, but would primarily help private car owners, who tend to be wealthier, economist Antonio Gonzalez said.
Ministers said earlier this week the full package will include aid for economic sectors most exposed to the crisis, and added that the country’s high generation of renewable energy meant its economy was less exposed to the impact of oil price spikes caused by the war.
Electricity prices and energy mix
Spain’s electricity prices have been among the lowest in Europe this year due to abundant rains filling hydropower reserves, high electricity generation from wind and solar, and nuclear power enabling it to rely less on gas than other countries.
How do you think the proposed tax cuts would affect your household energy and transport costs?