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Government plans to extend its IVA sales tax reduction on some staple foods in Spain
Personal finance

Government plans to extend its IVA sales tax reduction on some staple foods in Spain

The money-saving measure for households, originally adopted to alleviate price rises following the Russian invasion of Ukraine, was set to come to an end on 30 June this year

Amparo Estrada / Edurne Martínez

Madrid

Wednesday, 12 June 2024, 15:00

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The Spanish government is set to extend its IVA sales tax reduction on some staple foods which was due to expire on 30 June.

Prime Minister Pedro Sánchez, announced in an interview on Televisión Española (TVE) today: "Food prices are still high and we have to make this enormous effort for the public coffers but also for our households". Sánchez said he will present his proposal to extend the IVA rebate to the lower house, where he has a parliamentary minority, for it to go ahead.

Last December, the government extended until 30 June this year the 0% IVA rate for certain basic foods such as milk, bread, eggs and cheese, and fruit, cereals and some vegetables. The IVA reduction from 10% to 5% on pasta was also extended. In addition, in March the government lowered the sales tax on oil to 0%, a measure that has not yet passed through parliament.

In April, in an economic update and fiscal forecasts for the years 2024 and 2025 sent by the government to Brussels, it was predicted the IVA rebate on food would end on 30 June this year.

According to the latest data from Spain's INE national statistics institute, the price of food and non-alcoholic beverages increased year-on-year in April to 4.7%, four tenths more than in March, mostly due to the rise in the price of fruit and vegetables. Between April 2023 and the same month in 2024, what has risen most in price is olive oil (68.1%), which has accumulated a rise of 204.8% since January 2021, meaning its cost has tripled in the past three years.

The IVA reduction on foods was originally adopted to alleviate the price increases following the Russian invasion of Ukraine.

Rising inflation

The sales tax on some staple foods set to lapse on 30 June, was set to increase inflation for the month of June by 2 to 3 tenths, and one tenth of a tenth upwards for the average of 2024, to close the year with a CPI rate of 3%, according to the Bank of Spain.

Prices continue to give Spanish households no respite. The inflation rate (CPI) rose by another three tenths of a percentage point in May - the latest data published by the INE - to 3.6%, its highest rate for more than a year. The withdrawal of part of the support measures since last January to combat the impact of inflation is having a direct impact on the rate since the start of the year. May was the third consecutive month with a rise in prices and is now eight tenths of a percentage point higher than its lowest rate this year, when it reached 2.8% in February.

Ángel Gavilán, director of statistics at the Bank of Spain, said during a presentation of the agency's quarterly report the measures implemented to combat the inflation crisis should have been "more focused", directly helping the most vulnerable groups, which would also have entailed a "much lower" budgetary cost.

Why is food inflation higher in Spain?

It is true that food inflation is still higher in Spain than in other European Union countries. Although food prices continue to slow down despite the uptick in the general CPI rate in March and April, the different composition of the Spanish shopping basket means people in Spain pay more. The Bank of Spain pointed out that it is not that foods are registering higher prices in Spain than the rest of Europe, but that Spanish households are buying more of the foods of which prices have risen the most. This is the case of olive oil, which has tripled in price in two years and is a basic product that is much more widely consumed by Spanish families than in other EU countries.

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