The Government will eliminate the VAT reduction on food if core inflation falls below 5.5% |  Economy

The Government will eliminate the VAT reduction on food if core inflation falls below 5.5% | Economy

The Executive approved yesterday, in the last Council of Ministers of the year, the redesign of the aid package to face the inflationary crisis in 2023. The decree, introduced by the President of the Government, Pedro Sánchez, combines the extension of some measures that already exist, such as the reduction of energy taxes, with the implementation of several novelties, such as a check with 200 euros for vulnerable homes or a VAT reduction on basic foods. Rental contracts about to expire are also frozen for half a year. Other initiatives such as the general bonus of 0.2 euros for gasoline are redesigned and lose their universal character.

However, several of the most important measures, which affect food, the reduction of gasoline, housing and transportation, have fine print.


One of the objectives of the package that Sánchez and the second vice president, Yolanda Díaz, closed yesterday morning, is to stop the rise in food prices, which rise at an annual rate of 15% in the CPI. To this end, the Government has approved a VAT reduction for six months for basic necessities, which will go from being taxed from 4% to 0%. This group includes bread, bread-making flour, milk, cheese, eggs, fruits, vegetables, legumes, potatoes and cereals. The VAT rate for oil and pasta will also be lowered, which will go from 10% to 5% for half a year. It will mean savings for families of 661 million, according to Moncloa.

However, Moncloa adds in a note, it will remain until June 30 “or until core inflation drops below 5.5%. If it falls below that rate, the usual VAT tax rate on the aforementioned food will be recovered. The core CPI, which does not take into account energy products or unprocessed foods as they are more volatile, closed November with an annual rise of 6.3%. According to the latest estimates from Funcas, it will close December at 6.2% year-on-year to drop to 5.8% in January and 5.4% in February. If these projections are fulfilled, the measure announced by Sánchez would last just two months.

In parallel, the Government will launch a check for vulnerable families. As detailed by Sánchez, it will be made up of aid of 200 euros for households with incomes of less than 27,000 euros per year and assets of less than 75,000 euros, some 4.2 million according to Executive estimates. Among the details, it should be noted that the check will not be a finalist. In other words, the beneficiaries will be able to request the income from the Tax Agency and spend it on what they consider.


The 20-cent discount on fuel will be eliminated across the board and will focus solely on professional sectors such as transport. But even so, the days will be numbered: it will be extended only until March and will become 10 euro cents per liter during the second quarter of 2023.

The Government will also modify the bonus process, which will no longer be automatic when paying at the service station to be obtained in the returns that professional groups such as transport receive at the end of the month. Farmers and fishermen will also have their own aid.

living place

Housing, as usual, has been one of the most complicated issues in the negotiation. Finally, the two partners have agreed to a freeze on rental contracts for six months on the same terms. However, this measure refers only to the conditions of the contract, since the rents may be updated, although with a cap of 2%. The measure will affect tenants with a contract that ends before June 30, 2023, always at the request of the tenant.

It should be remembered that the Executive has already extended the ceiling of 2% to update rents throughout 2023. In other words, those contracts that are subject to the annual review (which is usually matched to the CPI) can only become more expensive in this proportion.


As for transport, there will be a 30% reduction in that of public ownership that will be borne by the State, both urban and interurban. Of course, it will only be applied in the territories where the regional and municipal government complement it up to 50%. To this will be added the free Suburban, Rodalies and Medium Distance Renfe season tickets during 2023.

Other measures

Among other measures approved (see graph) is the extension of the VAT reduction for electricity and gas, which will remain at 5%. The suspension of the generation tax of the electricity tax and the reduction of the special tax will also be extended. At the same time, a new ICO liquidity line of 500 million euros and 450 million euros in aid for the ceramics sector and other subsectors have been approved.

Sánchez expressed his chest that all the new measures will entail a fiscal cost of 10,000 million that will be added to the 35,000 million deployed in recent months. He also boasted of initiatives such as the cap on gas, through which each family has saved an average of 150 euros. He also anticipated that this year’s growth may be higher than expected, exceeding 5%.

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