Sánchez confirms that he will extend the VAT reduction on food, contrary to the forecasts he sent to Brussels
The Government intends to extend the VAT reduction on food beyond June 30. This was announced this Wednesday by the president Pedro Sanchezwhich has confirmed its intention to extend the rate reduction from 10% to 5% on basic products such as oil and pasta and the elimination of the tax on others such as bread, milk, fruit or eggs. This decision differs from what was initially planned by the Executive, which contemplated the withdrawal of the bonus in its forecasts sent to the European Commission in April.
Sánchez has recognized that food prices continue to be “high”, hence the Government’s intention to extend the VAT reduction, which ends in just over two weeks, on June 30. “We want to do it, that is the will,” he stated in an interview with TVE. As he has indicated, the Executive is preparing to delay the measure, which will then have to go through Congress.
“The evolution of food prices still continues to be high and, therefore, we have to make that effort, which It is an enormous effort for the public coffers, but necessary for our homes“explained the President of the Government. In the absence of knowing the CPI for May this Thursday, the latest data from the National Institute of Statistics (INE) show an acceleration in the rate of increase in food prices, whose inflation rose four tenths in April in the interannual rate up to 4.7% The rebound was especially pronounced in the case of fresh and refrigerated fruits and vegetables, whose price rose by more than 2% in the fourth month of 2024 only. March levels.
In December, the Executive already extended the VAT reduction on food for six months, until June 30. This bonus sets a rate of 0% for certain basic foods such as bread, flour, milk, cheese, eggsfruit, vegetables, legumes and cereals and reduces the tax to 5% in the case of oil and pasta, although Congress is additionally processing the elimination of VAT on olive oil, just as the Government agreed with Junts to ensure its support in January.
The Association of Manufacturers and Distributors (AECOC) has celebrated the intention to undertake a new extension, a step they consider a “show of support” to the consumer. “The reduction in VAT on food has proven effective, despite not applying to essential products in the shopping basket such as meat or fish and, therefore, not having extended it would have had a very negative effect on the evolution of food prices,” said the general director of the association, José María Bonmatí, after learning of the announcement.
Like AECOC, the OCU also asks to extend the tax credit to other basic products such as meat and fish. Despite celebrating the extension, the consumer organization believes it is necessary to complement it with other measures such as extending the aid of 200 euros per year to vulnerable households. For its part, Facua agrees consider the extension of the tax reduction “insufficient” and demands the setting of maximum prices to control the constant rise in food prices, understanding that the VAT reduction has proven to be “ineffective” and has not prevented prices from continuing to rise.
Price evolution
Initially the Government had contemplated ending the bonus in July, when the current extension expired. This was stated in the macroeconomic and fiscal forecasts for 2024 and 2025 sent to the European Commission in April. However, In recent months, the rise in food prices has driven inflation, which would have led the Executive to change its position. The INE attributed the rise in prices in April, when inflation rose one tenth to 3.3%, precisely to the behavior of these products. The advance continued in May, with the provisional year-on-year rate standing at 3.6%.
Specifically, taking as reference the latest data for April, The food that has become most expensive in the last year has been olive oil, whose price has risen 68.1% and has accumulated an increase of 204.8% since January 2021, which means that it has tripled in just over three years. The general director of Economy and Statistics of the Bank of Spain, Ángel Gavilán, recognized this Tuesday that the notable weight of ‘liquid gold’ in the shopping basket is the main factor that explains why the price of food grows in Spain at higher pace than in the European Union as a whole, where the average inflation rate stood at 1.9% in April.
The price increase is not exclusive to olive oil. Although at a considerable distance, it is followed by fruit and vegetable juices and fresh and refrigerated fruits, which are around 17% more expensive than a year ago. Also the price of potatoes, sheep and goat meat and chocolate has grown by more than 8% since April 2023, while that of frozen legumes and vegetables has risen by 7.5% and that of salt, cocoa powder, fresh fish and dried legumes, around 6%. Some of these products such as meat, fish, yogurts, sugar and coffee are excluded from the tax reduction.
The Bank of Spain estimates that The price of food will rise on average by 4.5% in 2024 as a whole, after having soared 11.7% last year. This behavior would confirm a moderation in the inflation of these basic products, which remains far from the double-digit rates that it reached during much of 2022 and 2023, driven by the energy crisis triggered by the outbreak of the war in Ukraine.
