The Government of Spain expands measures to cushion the effects of the war and protect the most vulnerable

Council of Ministers - 2022.6.25

Moncloa Palace, Madrid

Following the extraordinary meeting of the Council of Ministers, the President of the Government of Spain, Pedro Sánchez, has stressed that the Executive is well aware of the difficulties that families and businesses are experiencing due to the escalation of prices, caused above all by the Russian invasion of Ukraine.

The first Response Plan, he added, has cushioned the effects of this international crisis, but inflation is still holding back recovery and uncertainty remains around the world, so additional measures are needed. The government estimates that this set of actions will allow the rise in prices to be contained to 3.5 points.

Pedro Sánchez underlined that this is the same government that confronted COVID, approved a labour reform that has generated more and better quality employment, obtained European funds to transform the economy and achieved an exceptional mechanism that has cushioned the rise in energy prices. The response to the current situation, he said, will be the same: protecting families and businesses, starting with the most vulnerable, and putting the general interest and fair burden-sharing above selfish interests.

Budgetary effort

The Council of Ministers has approved the Royal Decree-Law adopting urgent measures within the framework of the National Plan of response to the economic and social consequences of the war in Ukraine. The text will involve a budgetary effort of more than €9 billion - some €5.5 billion in expenditure and €3.6 billion in revenue reductions due to tax cuts. In total, by the end of 2022, the government will have earmarked around €15 billion for this objective, as the Chief Executive explained.

Foto: Pool Moncloa / Fernando Calvo

Protection against energy prices

A first set of initiatives seeks to protect consumers, especially the most vulnerable, from rising energy prices. VAT on electricity will be reduced from 10% to 5% from 1 July until the end of the year and the rest of the measures in force, such as the extension of discounts for the social bonus and the reduction of other taxes linked to electricity, will be maintained.

The new decree also extends the 20 cents per litre discount on fuel prices until 31 December. Additionally, and with the aim of promoting public transport, a 50% reduction has been approved on the price of all monthly season tickets and any multi-trip ticket for land transport provided by the state or state entities. The reduction will be 30% for tickets issued in the autonomous communities and by local bodies, who will be able to top the measure up to 50% with their own resources. Sánchez affirmed that the reduction will apply from 1 September to 31 December.

Increase in the Minimum Basic Income and non-contributory pensions

The regulation also includes specific measures for the most vulnerable people. The transitional increase of 15% of the Minimum Basic Income, the prohibition of the suspension of the supply of electricity, gas and water, and the 2% ceiling on the annual rent update for main residences are maintained. It also extends the suspension of evictions from main residences for vulnerable individuals and families. Furthermore, the increase in energy costs will continue to not be able to constitute objective grounds for dismissal in companies receiving aid under the Decree-Law.

The president highlighted three additional measures in this area: a 15% increase in non-contributory retirement and disability pensions until 31 December; direct aid of €200 for wage earners, the self-employed and the unemployed registered at employment offices who live in households with an income of less than €14,000, a one-off payment that can be requested during the month of July; and the freezing of the maximum price of a butane cylinder until the end of the year at €19.55.

Foto: Pool Moncloa / Fernando Calvo

Support for the most affected sectors

Another group of actions focuses on the sectors most affected by the rise in prices: the deferral of the payment of social security contributions for the fishing, agricultural, urban and road transport sectors is extended until September; direct aid is earmarked for gas-intensive industries; and the existing aid against drought is extended, among other initiatives.

The Royal Decree-law also extends the protection measures for those affected by the volcanic eruption on La Palma and extends the reduced VAT rate of 4% for surgical masks until the end of the year.

Taxation of extraordinary profits of energy companies

Apart from the decree-law, Pedro Sánchez has announced that the government is designing a new tax that will tax the extraordinary profits of energy companies resulting from the rise in energy prices.

The president stressed that this initiative is in line with other similar initiatives being adopted in European countries and with the recommendations of international organisations such as the European Commission, the OECD and the IMF. Sánchez argued that the burdens brought about by the current situation should be shared fairly and that those who are indirectly benefiting from the price rises should make an "additional contribution to the collective effort".

Foto: Pool Moncloa/Fernando Calvo

The tax will be presented in the coming weeks as a bill by the two parties of the coalition government, to come into force on 1 January 2023, he said.

Third disbursement of European funds

During the press conference, the President insisted that the Government of Spain will continue in the current direction with the modernisation of the productive model, with the help of the Recovery, Transformation and Resilience Plan funds.

To this effect, he announced that he is confident that, over the next week, the European Commission will approve the third disbursement of European funds to the value of €12 billion, which will bring the amount received by Spain thanks to the fulfilment of the milestones and objectives of the plan to €31 billion.

Non official translation