The future Government will have on the table an economic dilemma that is not easy to solve. The Ministries of Economy and Finance have decided to exclude from the Budget Plan sent to Brussels last Sunday some measures of the so-called “social shield” in which the Government has already spent more than 50,000 million to help families and companies combat inflation in the last two years, as highlighted a few days ago by the acting first vice president, Nadia Calviño.
Specifically, the document that sets out the general lines of Spain's economic policy for 2024 contemplates the elimination of five tax aid aimed at reducing the electricity bill and the shopping basket. The decision, if it ends up being carried out, would mean extra income for the public coffers of 4,895 million. The problem is that the context of international instability, which directly influences the energy crisis, and the high prices at which certain basic products still remain, such as olive oil, complicate the en bloc withdrawal of these tax cuts.
The fiscal aid that represents a greater outlay for the State is the reduction of VAT on some food products. Returning to the previous VAT (from the current 0% to 4% for basic products and from 5% to 10% for oils and pasta) would provide additional public revenue of 1,350 million in 2024. For its part, recovering the tax on the value of Electrical production would contribute 1,100 million and raising the special tax on electricity from the current 0.5% to 5.11% would add 1,032 million more.
In addition, recovering the 21% VAT rate on electricity would mean an additional 1,016 million. Finally, eliminating the VAT reduction on gas, wood and pellets (currently these products are taxed at 5%) would mean recovering 397 million.
The problem is that the Budget Plan for 2024 submitted to the European Commission has been prepared taking into account that these five aids will decline as of January 1 and, therefore, counting on this extra income. There are, therefore, an additional 5,000 million that serve the Treasury to square the deficit at 3% at the end of next year in a scheme to return to fiscal rules. Without them, the budget sudoku doesn't fit.
The economic area of the current acting Government has not yet specified which fiscal aid measures it will extend and which will disappear. The Treasury assures that it is still “early”, that “there are more than two months left until the end of the year” and that the economic scenario by then may be different from the current one. Better or worse. And therein lies another of the possible weak points of Spain's Budget Plan. The document states that "although the price of oil is rising, gas maintains its downward trend." Specifically, in the table relating to the price of energy products, the acting Executive contemplates a price per barrel of Brent for 2024 of 89 dollars, compared to 84 dollars this year. The price of natural gas, for its part, is set at 33 euros/MWh in 2024, compared to €37/MWh for 2023. These levels, however, could undergo notable changes taking into account the war scenario in the East. Next and, consequently, leave the estimates contemplated in the budget vademecum on empty paper.
The document on Spain's economic roadmap specifically mentions an “inertial” scenario, that is, the Government has chosen not to venture scenarios when it is in office. However, sources in the economic area already anticipate that some of these tax relief decisions will have to be extended or, at least, adapted. For all of them to decline en bloc would also be an unpopular decision that the Treasury is not contemplating at this time. Where, then, would the budget come from to extend or approve new aid and comply, in turn, with the 3% deficit objective? The Government would have to increase revenue or cut spending.
An option regarding future fiscal relief aid that will be applied from January 1 that national organizations, such as the Bank of Spain and Airef, and international organizations, such as the IMF, insist on, is to focus it on the groups needy and end general measures. The Treasury has studied it and already ventures that in the case of VAT on food it is “impossible” to apply discrimination based on income. In the case of the energy VAT reductions, the Budget Plan cites a scenario “of greater price stability” that could help the “lift” of the measures.
The only fiscal measure that the Government confirms that it will maintain is the aid to public transport in which there is a maintained expenditure of 1,440 million for next year to subsidize commuter trains, Rodalies, medium distance, urban and interurban transport, and bus trips made by road.
