The Government intends to approve in a Council of Ministers this Friday a package of shock measures to contain the economic effects of the conflict in Iran. The tax reduction on fuel, electricity and gas are the most notable measures, but the plan also includes specific aid to transporters and farmers and a reinforcement of the social shield.
What has happened? The Government wants to lower VAT of electricity, gas and fuels from 21% to 10%. The special tax on hydrocarbons will be temporarily eliminated, which will mean direct relief in the price of diesel and gasoline between 30 and 40 cents per liter, depending on share SER chain. The special tax on electricity, currently at 5%, also disappears, along with the tax on the value of electricity production.
According to account El Diario, the Council of Ministers, scheduled for this Friday at 9:30, had to be delayed due to pressure from Sumar to include measures at the last minute in the decree on housing and control of business margins. Therefore, we still have to wait a while until the approval is given.
Why now and not before. The trigger is the war in Iran, which has strained crude oil markets through of the Strait of Hormuzartery through which a relevant part of the world’s oil travels. In just weeks since the start of the conflict, gasoline has risen by 16% and diesel by 29%.
At the time of writing this article, fuel prices are already €1.94/liter on average for diesel and €1.81/liter for 95 gasoline, according to data from the Ministry of Ecological Transition collected by Dieselogasolina. For this reason, the Government has ended up accelerating the response.
In detail. The package goes beyond fuel. For the most exposed sectors (transport, agriculture and fishing) direct aid of 20 cents per liter is recovered, according to they count from El Diario. The electric social bonus is reinforced, supply cuts to vulnerable homes are prohibited and the thermal social bonus for gas consumers is increased. In parallel, the decree includes more structural measures: incentives for improving energy efficiency in homes, support for electric vehicles and promoting self-consumption.
The SER also points out that the Government also contemplates reducing the electrical costs of the electro-intensive industry (steel, chemistry), a nod to the PNV, according to they count from The World.
ANDl rocket and feather effect. Just because VAT goes down on paper does not mean that the price at the pump will go down just as fast. This is what economists know as the theory of the rocket and the pen: When oil rises, prices at gas stations react immediately; when it falls (or when tax cuts are applied), the transfer to the final consumer is much slower. Gas stations adjust prices upwards almost automatically, but the cuts take weeks or months to reach the pump with the same intensity.
The Government does not want to repeat what happened in 2022. We have the most recent precedent in the bonus of those 20 cents per liter that the Executive applied during the Ukraine crisis. It cost around 4,250 million euros and its effectiveness was, to say the least, questionable. Three independent studies (one from Esade, one of Funcas and a joint investigation of economists Jiménez, Perdiguero and Cazorla-Artiles published in December 2024) concluded that a significant part of that aid did not reach consumers.
Studies indicated that gas stations They appropriated at least 850 million of that bonus in the case of diesel. The Esade study detected that service stations They increased the price of diesel between 3.52 and that of gasoline at 0.7 cents just when the measure came into force.
In the month of April 2022, when the discount started, gas stations increased their profit margin by 23%, according to share from Metropolitan. The CNMC, for its part, archived the investigation without sanctioning any company.
This history is precisely the reason why the Government has opted this time for a direct tax reduction, which acts on the taxes included in the price, instead of repeating the universal bonus. From the Spanish Confederation of Service Station Employers (CEEES), its general director Nacho Rabadán had already asked to participate in the design of any measure and qualified the 2022 bonus as “well-intentioned, but poorly designed and worse executed.”
The decree reaches the Council of Ministers this Friday, but we will have to wait until next Thursday for it to be validated in Congress.
Cover image | Alberto De la Torre and Dawn McDonald
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