The Government is divided on the shock plan 24 hours after the decision

Just 24 hours before the Council of Ministers, which must approve the new shock measures to deal with inflation, the Government remains divided.

24 June 2022 Friday 15:13
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The Government is divided on the shock plan 24 hours after the decision

Just 24 hours before the Council of Ministers, which must approve the new shock measures to deal with inflation, the Government remains divided. The negotiators of the socialist part and that of Podemos ended yesterday's session without an agreement. “As things are now, we cannot support the royal decree,” said Podemos sources.

Today the negotiations will continue, already authentically against the clock, to try to reach an agreement on a package of emergency measures that satisfies both parties. The VAT on electricity at 5% was announced by Pedro Sánchez and Podemos, although he sees it as insufficient, accepts it. But, in the global of the rest of the measures the differences remain.

The first shock plan expires at the end of the month, so its renewal is essential. In addition, the objective of the Government is not only to renew, but to deepen the measures to tackle an inflation that persists and damages the economy and the confidence of the citizens. To deal with it, one of the announced measures is the reduction of VAT on electricity. The Government reassessed the persistence of inflation, reconsidered the political impact and on Wednesday ended up announcing this tax cut that it denied until recently. However, yesterday he recognized that with this tax reduction the problem of inflation is not solved; that it can serve to cushion the blow, but that it is necessary to go to more substantive solutions. It was admitted by one of the ministers who had most resisted the reduction, the person in charge of Ecological Transition, Teresa Ribera.

“With tax cuts the problem is not solved, they are short-term, emergency measures. What we need is to speed up far-reaching structural changes," Ribera said in an argument that wanted to combine the reasons for his previous reticence, the criticism of the PP because "we dedicate ourselves exclusively to questioning taxation and thinking that the transfer of resources to taxpayers does not has limits is to see reality in a distorted way” and the need for changes in the medium and long term.

However, in the package of measures that is intended to be approved tomorrow, the short term prevails. There is the announced reduction of VAT on electricity from 10% to 5%, the extension of the 20-cent discount on gasoline, the reduction of the transport bonus and the 300-euro check for the most vulnerable.

Therefore, everything focused on the very short term. And also, the star issue, the tax on electricity companies, is very green. There will be no decision this Saturday, things are not ripe, different government sources point out. There is no political agreement nor has the technical complexity involved been overcome.

There is a consensus on taxing the extraordinary benefits of electricity companies, but not on how to do it. “You have to be careful”, recognized Teresa Ribera in her speech at Nueva Economía Fórum. There are two possible formulas, an increase in corporate tax or a new tax. In any case, the path of the decree law is very limited. It is not feasible if you want to establish a new tax. It has to be conveyed through a law, which would require several months. In the Treasury, however, they defend that if it is approved before December 31, it can be applied to the benefits obtained in 2022.

In the case of an increase in corporate income tax for electricity companies, there are doubts as to whether the decree-law route is feasible. It is very much in mind how the Constitutional Court annulled in July 2020 the modification of the installment payments of the corporate tax that the then Minister of Finance Cristóbal Montoro had established in 2016. An annulment for processing it via decree law.

On the other hand, electricity will drop 17% this Friday to 227 euros MWh. It is 55 euros less than it would have cost without the gas cap. For their part, fuels do not give up. The price of gasoline yesterday rose again and stood at an average of 2,141 euros per liter, two cents more; and diesel increased seven cents to 2,076 euros. Filling the tank with gasoline cost 1.13% more expensive yesterday than a week ago, and doing so with diesel, 3.64% more.



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