Spain: The government axes VAT of staple foods for six months
Staple foods currently on a 4% tax rate would be VAT exempt and oil and pasta taxed at 10% would be downgraded to a 5% for the first six months of 2023. The government also grants a single aid of 200 euros to buy food for low income families.
The Council of Ministers has approved on November 27th a new raft of anti-crisis measures worth 10 billion euros, which will join the 45 billion of the two previous packages to alleviate the effects of the socioeconomic crisis that Spain is going through.
VAT on food
VAT on food in Spain varies between the reduced rate (10%) and the super-reduced rate (4%). All products that can serve as food for humans or animals are subject to 10% VAT (meat, fish, oil, pasta). Those considered as staple foods (milk, eggs, fruit and vegetables, bread) are taxed at the super-reduced rate of 4%. Certain products (sugar beverages, alcoholic beverages) are subject to the general VAT rate of 21%.
As part of the third package of anti-crisis measures announced yesterday, during the first six months of 2023, staple foods (bread, milk, cheese, eggs, fruits, vegetables, legumes, potatoes and cereals) will be exempt from VAT. In addition, VAT is downgraded from 10% to 5% on oil and pasta.
The reduction in VAT on food was a measure that had recently been suported by the conservative PP party as well as by the food industries and supermarket chains.
During a press conference, the PM said “the government is going to ensure that VAT reductions and aid to farmers are transferred directly and immediately to food prices”.
The government will also launch a single 200-euro food purchase aid check for 4.2 million households, those with incomes of less than 27,000 euros per year and with assets of no more than 75,000 euros.
660 million euros for agriculture and fisheries
The government will also allocate direct aid worth 660 million euros to help farmers and fishermen cope with rising energy prices.
In the case of fertilizers, some 300,000 farmers will benefit from direct aid, with a maximum budget of 300 million euros. This subsidy will be granted per hectare, up to a maximum of 300 hectares, and will be 22 €/ha in the case of rainfed land and 55 euros for irrigated land.
Fertilizers account for 8% of agricultural input and their average price increased by 80% between September 2021 and September 2022.
Farmers and fishermen will continue to receive the aid of 20 euro cents per liter of diesel. Some 120,000 farmers will benefit from a total aid of 240 million euros. In the case of the fisheries sector, the amount planned amounts to 120 million euros, which will benefit around 9,000 fishing vessels. The sector also benefits, for a further six months, from the exemption from fishing fees, which will save around 500,000 euros.
Reactions from the retail sector
Sectoral organizations think that the VAT measures will have a direct and positive impact on household finances. However, they consider the exclusion of products such as fish, meat or yoghurts from this VAT reduction to be a missed opportunity.
On the other hand, they again regret that no measures have been adopted to avoid further cost overruns for companies. Thus, the entry into force on 1 January of the plastic tax is a serious threat as it will involve an extra cost of 700 million euros. These organizations believe that it would have been great news to follow the example of other EU countries and postpone its application until at least 2024.
Why are meat and fish left out of the tax reduction?
According to business sources, there are two reasons for this. The main reason is that oils and pasta are informally considered basic and common products in the shopping basket, despite not being subject to a super-reduced rate of 4%. Moreover, these are among the foodstuffs that have seen the highest price increases over the last year.
Olive oil grew in November by 25.9% year-on-year, according to the CPI data. This percentage rises to 55.9% for other types of edible oils, including sunflower oil. All of them are included in the reduction announced by the government.
The same is true of pasta, which has risen in price by 21.5%. This category has accumulated nine consecutive months of year-on-year increases of over 20%.
In both cases, the increases outstripped those of fresh meat and fish, although they also grew by double digits: poultry meat rose by 16.6%, beef and pork by 13.2%, and fresh fish by 10.4%.
Food inflation was 15.7% in November
Overall inflation moderated to 6.8% in November, which means that the year-on-year rate is no longer as high as it was in the summer, above 10%. However, food prices rose by 15.7%, only one tenth of a percentage point less than in October Only in Germany food is more expensive than in Spain | Nieuwsbericht | Agroberichten Buitenland
Oil (+55.9%), sugar (+50.2%), flour (+37.6%), butter (+37.5%), skimmed milk (+31%) and whole milk (30.9%) have risen the most since last year. Other staple foods have also become more expensive: eggs are 27.1% more expensive; olive oil, 25.9%; yoghurt, 25.6%; potatoes, 20.5%; cheese, 20.3%; chicken, 16.6%.