The government is internally discussing several measures to adopt on Saturday an anti-inflation decree much stronger than the previous one which ends on June 30th. As the main measure of this new anti-crisis rule, the executive is working on inflation adjustments for around four million beneficiaries, who are yet to be defined whether they would be family units or individuals. According to INE statistics, there are around four million households with annual family incomes of less than 12,000 to 14,000 euros. The aim would be to reach the lower middle class, who are suffering from the increase in food prices, are not among the recipients of social benefits and do not receive tax subsidies by not filing income tax returns.
The size of the check could be around the €300 United We Can has already defended, although the final number may vary depending on negotiations between the government’s economic teams and the coalition’s minority partner. These began late Tuesday and will continue this Thursday and Friday. If it ended up being 300 euros per household, the cost of the measure would be around 1,200 million euros. It has not yet been decided whether it will be Treasury or Social Security that will administer it. United We Can prefer it to be the first due to its greater effectiveness.
As confirmed by various government sources, this would be one of the initiatives that would be included in next Saturday’s package, in addition to the reduction of VAT on electricity to 5%, announced this Wednesday by Prime Minister Pedro Sánchez and other relevant issues that are still being discussed will. The measure of 300 euros was already a requirement of United We Can in the previous decree and has now been reactivated. Then the socialist sector dismissed it: they argued that Spain had already helped that sector with the minimum lifetime income reaffirmed in the decree. However, now he’s ready to push it forward. The reason is the aggravation of the crisis due to persistent inflation and also the possibility of extending aid to workers who have low incomes, but not enough to meet the minimum essential income.
The measure comes after a major political setback in Andalucia’s elections, which has prompted the government to step on the gas and deepen the package already for this summer. Other countries like Italy and France have also opted for low income checks to offset inflation. In France it was 100 euros for those earning less than 2,000 euros a month – salaries are higher than in Spain – and in Italy 200 euros for those earning less than 35,000 euros a year.
Leaving aside the political situation behind the Andalusians, which is forcing them to take the initiative to revive their pulse, the government’s diagnosis for the economy is clear: inflation is increasing so much that it is very difficult to stop it by a Operation to be fought at the root B. in the energy sector, where a gas cap was decided, which already lowers the price of electricity, albeit moderately. A detailed analysis of the guts of the IPC shows that about 70% of the basket has been accelerating prices for the past six months. And half of the increase in CPI comes from non-energy goods and services. For this reason, inflation-dampening measures are no longer sufficient. A more vigorous package is needed to tackle the impact on family income.
There is considerable consensus in the executive branch on these and other issues on the table, such as expanding or even increasing aid to farmers, ranchers, fishermen and transport companies. These are minimums against which the details are being worked out with the Treasury Department’s watchful eye, concerned about the potential lack of deficit control. Basically, the 20 cent rebate for fuel will be extended again, the increase in these three months has almost eaten up the subsidies. United We Can would like differences to be made based on income, but the Treasury Department rules this out due to its complexity. In addition, the executive is also finalizing another Star measure in the opposite direction to gasoline assistance, which represents a significant reduction in the cost of the mass transit subscription. The executive branch would fund one portion of this waste and the municipalities and municipalities another, which can pose political problems. In addition, the 2% limit for rent updates would be extended.
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But where the substantive discussion is is the tax hike for electricity companies, which is being pushed by much of the government’s allies and promoted by United We Can. La Moncloa concedes that the situation of extraordinary profits and the distribution of record dividends while citizens have to pay for electricity, gas and fuel is politically unsustainable. However, the Treasury prefers to apply this tax from 2023 to proceed cautiously and avoid conflicts with Brussels and possible lawsuits. I would like to see the legal framework and that its approval goes hand in hand with the budgets. Some countries like Italy, Greece or the UK have already promoted extraordinary taxes on energy companies. United We Can calls for urgency to do so now, in this decree or in a specific law. There is no agreement at the moment.
The socialist sector rejects a rate hike of about ten points that Podemos is asking for. According to government sources, increasing the rate would not do much as there are mechanisms such as negative tax bases that would neutralize this increase. Instead, the executive is investigating a surcharge on the exceptional benefit, similar to that in Italy and the UK, where an average of previous periods is calculated and a tax is levied on the difference. For example, in Italy, where Mario Draghi’s government started with a 10% mark-up and has now announced that it will rise to 25%, it is calculated from VAT returns and applied to electricity, gas and oil companies. Upon approval, Italy expected to earn around €4,000 million on the levy. One way to speed up collection is for this surcharge to be introduced through installment payments, which companies use to advance their corporate contribution.
The government has launched a series of measures to try to reduce electricity bills, with cuts in taxes and the cap on gas in the electricity market. This is where the additional reduction in the VAT on light to 5% announced by Sánchez would come into effect. The government had already lowered it to 10% last summer from 21%, to which the PP government raised the general interest rate during the euro crisis. Spain follows in the footsteps of Poland, which also lowered the rate to 5% without asking the EU for permission. This was one of the main demands of the PP in the previous decree. In this way, with the full package and a few more measures that can be thrown in today, the executive wants to lighten the pockets of inflation-stricken citizens and change the political agenda in what is a particularly difficult week. It is possible that the President himself will appear on Saturday to announce a package in which the entire executive branch makes a big star of the crisis.
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