The Spanish government plans to extend the IVA sales tax reduction on certain staple foods, which was originally set to expire on 30th June. Prime Minister Pedro Sánchez announced the extension during an interview on Televisión Española (TVE) today, citing persistently high food prices and the need to support households.
“Food prices are still high, and we have to make this enormous effort for the public coffers but also for our households,” Sánchez stated. He intends to present the proposal to extend the IVA rebate to the lower house of parliament, where his government holds a minority.
Last December, the government implemented a 0% IVA rate on essential items such as milk, bread, eggs, cheese, fruit, cereals, and some vegetables. The IVA rate on pasta was reduced from 10% to 5%, and in March, the government lowered the sales tax on oil to 0%, though this measure has not yet passed through parliament.
In April, the government’s economic update and fiscal forecasts for 2024 and 2025, sent to Brussels, indicated that the IVA rebate on food would end on 30th June. However, with food and non-alcoholic beverage prices increasing by 4.7% year-on-year in April, driven mainly by the rising cost of fruit and vegetables, the government decided to reconsider the deadline.
Notably, the price of olive oil surged by 68.1% year-on-year in April and has tripled since January 2021, accumulating a 204.8% rise. The IVA reduction was initially introduced to mitigate the impact of price increases following the Russian invasion of Ukraine.
Inflation continues to strain Spanish households, with the CPI rising by three-tenths of a percentage point in May to 3.6%, the highest rate in over a year. The removal of some support measures since January has directly impacted inflation, with May marking the third consecutive month of price increases.