Spain Announces 13 Trillion Won High Inflation Measures...Elimination of VAT on Food Products

Subsidy Support for Low-Income Households... Extension of Energy Tax Reduction

[Asia Economy Reporter Kwon Haeyoung] The Spanish government is implementing an inflation mitigation policy worth 10 billion euros (approximately 13.5 trillion KRW) by lowering the value-added tax on food products and extending energy tax reductions to curb soaring prices. This is the third price control measure this year, bringing the total support amount to 45 billion euros (approximately 61 trillion KRW) over one year.

On the 27th (local time), according to major foreign media, Spanish Prime Minister Pedro Sanchez announced a comprehensive inflation mitigation plan including these measures.

First, the value-added tax on essential food items such as bread, cheese, milk, fruits, vegetables, and cereals will be reduced from the previous 4% to 0%. The VAT on pasta and cooking oil will also be cut by about half to 5%. Support worth 200 euros (approximately 270,000 KRW) will be provided to 42 million households with an annual income below 27,000 euros (approximately 36 million KRW), and the tax reduction on energy bills will be extended until the first half of next year.

Additionally, subsidies for train commuters and restrictions on rent increases will be extended for another year. However, fuel subsidies reimbursements for consumers, excluding freight transport, have been discontinued.

[Image source=Yonhap News]

Earlier, the Spanish government announced measures such as direct financial aid, tax reductions, and loan and rent controls in March and June to respond to rising prices. These measures, along with Europe's gas price cap, are evaluated to have been effective. Last month, Spain's inflation rate was 6.7%, the lowest among the 27 European Union (EU) member countries. In particular, electricity prices fell by 22.4% compared to a year ago, significantly slowing inflation. On the other hand, food prices soared by 15% in both October and November.

Prime Minister Sanchez stated, "The support measures provided so far have contributed to strong economic growth this year," adding, "This year's growth rate will exceed 5%, surpassing the government's initial forecast of 4.4%."