Saturday, June 3, 2023

The government is considering removing the 20-cent rebate on fuel to allocate it to aid the purchase of food.

The President of the Government, Pedro Sánchez, speaks with Yolanda Diaz, the Second Vice President and Labor Minister, at the Congress of Deputies.Andrea Comas

The government is facing the final stages of negotiations to lock down a package of inflation aid. The current plan for the war in Ukraine expires on 31 December and the new plan has to be approved before 1 January. The two branches of the government, PSOE and Unidas Podemos, are trying to push the talks forward. And one issue that is starting to take shape in the discussions is the possibility of not extending the 20 cents rebate on fuel per liter to private consumers. In the case of transporters and farmers, it will be maintained, but with a different system: reinstating it as part of the normal return to professional diesel at the end of the month. All of these initiatives depend on the conclusion of negotiations and a final decision by President Pedro Sánchez, who faces a year marked by local, regional and general elections.

The idea is that the cost of this measure, which is 7,000 million for all drivers but only about 1,500 million for professionals, is used to fund aid that compensates families for the sharp rise in food prices, Which has increased by 15% annually. There is debate on how to do this. Handing out 300 euro checks and eliminating or reducing VAT on basic food items is gaining ground.

Unidas Podemos proposes to promote agreements with large distributors so that they set lower prices on a basket of basic foods, something that Yolanda Díaz had already promoted in negotiations with some of the larger chains but was ultimately successful. Not done. It will probably end up in some way, even if it is not the one initially proposed by the group led by the second vice president.

What the socialist sector categorically rejects, and especially the Ministry of Agriculture, which has direct contact with the sector, is the price control on the basic basket. He assures that price suppression is very difficult to explain legally, because you cannot be forced to sell at a loss and it is difficult to enforce where there is significant competition. Price intervention can have undesired consequences such as generating short supplies, increasing other products to compensate, or even eviction of SMEs that cannot afford it, explain sources familiar with the talks.

Therefore, other options are also being considered. Podemos has given direct checks to compensate the families. This is something that has not been ruled out by the socialist sector and its feasibility is being studied. There are meetings. Officially La Moncloa insists that “everything is open”. At the table, Podemos’ checks are discussed, which cost 300 euros to 10 million families out of 19 million. Its cost will be around 3,000 million euros. According to sources familiar with the talks, Agriculture has argued that this should only be done for households with children.

However, other departments such as the Treasury are more committed to a fall in VAT on basic food items, a measure they also believe will help combat inflation. If the 20 cent aid for fuel is suppressed, this will increase the CPI. But a reduction in VAT on food can offset this. Furthermore, a recent European directive allows member states to have more margin for reclassifying products in tax.

The drawback of this cut is that it is not very surgical and a part can be appropriated by the companies by increasing their margin. It also goes against the tax recommendations of experts and international organizations, which have always pointed out that Spain earns less from VAT due to the abundance of low rates. Therefore, checks appear to be a more attractive model for a portion of the executive.

Podemos believes that reducing VAT will have little effect, as many food items are already at 4% and others at 10% – this is not like the fall in VAT on electricity, which means 21% to 5%. % – and this also means entering the ideological line of PP. In fact, Alberto Núñez Feijoa took part yesterday to claim the measure as his idea when the Finance Minister indicated it this Friday. María Jesús Monteiro was in favor of combining measures aimed at vulnerable groups with more general initiatives, “for the entire middle and working class”. In other words, the check and the VAT deduction may also be combined.

VAT reduction on basic food items

The total package will initially have a bill of around 10,000 million euros. Some 5,000 million would be devoted to increasing the reduction in mild taxes. According to data taken from the Family Budget Survey, the measure could exceed 1,000 million euros in case of a reduction in VAT on food. According to sources in talks, the super-low rate of 4% on basic food items could be scrapped and the rate on pasta and oil, which are now taxed at 10%, reduced. The 4% rate includes bread, flour, dairy products, eggs, vegetables, legumes and cereals.

Unidas Podemos also raises other options, such as allowing the National Market and Competition Commission (CNMC) to control the margins of large distributors, as it does with the fuel market. He also proposed raising the corporate tax for large food conglomerates as has been done with energy companies, which has been rejected by the PSOE. A similar measure has just been announced in Portugal. And they have on the negotiating table the idea of ​​limiting by law the distribution of dividends to these large groups, who in the Diaz group’s opinion are benefiting from the crisis, while citizens are suffering better from food inflation than the rest. . properties.

The general fuel subsidy was highly criticized by organizations and institutions as it was very general and not very progressive. In fact, car use was being encouraged and helped by higher incomes, which make more use of this mode of transport. Therefore members of the government such as the economic vice president, Nadia Calvino, and the head of the ecological transition, Teresa Ribera, have argued that this subsidy should be abolished in order to dedicate its costs to more focused initiatives.

The government’s view was that these aids should be discontinued and approved by the Council of Ministers on 20 December. However, it is now more likely that he will appear at an extraordinary council on 27 December or on the 31st.

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