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The Government extends the tax cuts in light of June and asks for salary moderation to cushion the crisis

Russia’s intervention in Ukraine has disrupted the government’s economic plans. The President of the Executive, Pedro Sánchez, advanced yesterday before the plenary session of Congress a battery of measures to contain the foreseeable impact of the conflict on the recovery process, which this year should reach its cruising speed. And above all, in terms of energy, the Achilles’ heel of the Spanish economy since electricity prices have been clearly skyrocketing for almost a year.

Given the evidence that the price of energy will remain at very high values ​​in the coming months, the Government will extend until June 30 the fiscal measures to limit this evolution in the electricity bill. A) Yes, the reduction of the electricity VAT will be extended from 21% to 10%, the reduction of the electricity tax from 5.1% to 0.5%, the suspension of the tax on production paid by the companies, and the reduction of the charges for the exercise.

The discount of the social bonus for vulnerable groups will also be extended, which will be 60% in general terms, and up to 70% for households in a severe situation, with an appeal to the presidents of the autonomous communities to apply similar measures. The temporary reduction in the extraordinary benefit obtained by non-emitting gas generation plants is also extended until the end of June. “We are going to protect the electro-intensive industry, which is suffering tremendously from high electricity prices”he indicated.

To this end, during 2022 the charges to more than 600 electro-intensive consumers will be reduced by 80%. In addition, Flexibility measures in gas supply contracts for industrial companies will be extended until June 30.

On the other hand, Sánchez announced the call for an additional renewable energy auction for this semester. There will also be an item of 1,000 million for new green projects and storage; a plan to save consumption in the State Administration, as well as 100 million to renew public lighting with less consumption. And there will be 500 million to accelerate self-consumption.

The measures come in an environment of escalating electricity prices that seems endless. For today the cost of generation sets a new record for the year, standing at over 341 euros/MWh. It thus approaches the historical maximum of 383 euros/MWh, which was registered just before last Christmas Eve. In addition, at 9:00 p.m., it will exceed 400 euros/MWh.

In any case, the Government hopes that, beyond these measures, the EU will authorize a change in the method by which electricity prices are calculated. The objective is to remove the cost of gas from the ‘pool’, in an extraordinary and temporary way, to reduce the amount of these daily prices.

Social agents

Moncloa is also looking at employment to minimize the impact of the crisis, since the Executive is playing it in the process of economic recovery. Under this scenario, Sánchez has asked the social agents for an “income agreement” to generate stability “and avoid falling into an inflationary spiral.” In practice, the Government intends that the new collective bargaining agreement that employers and unions begin to negotiate this Thursday includes an agreement to achieve wage moderation.

It would be one of the formulas to avoid further upward pressure on prices, with the CPI soaring to 7.4% in February, its highest level in 30 years. “All this with the aim of avoiding falling into an inflationary spiral that undermines the purchasing power of families and savers and puts the recovery at risk”Sánchez indicated in his speech about the Russian invasion of Ukraine.

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