Government cuts VAT on gas to 5% due to lack of price controls

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Pedro Sánchez expects austerity measures to be proposed after the summer, although he rules out general austerity measures

The President of the Government, Pedro Sánchez, has announced that he will reduce the VAT on the gas bill from the current 21% to at least 5% until the end of the year, given the evolution of gas prices on the international markets, which in set a record in August, an exceptional situation.

Sánchez made the announcement in an interview on Cadena Ser five days after the debate he would hold with PP president Alberto Núñez Feijoo in a personal energy meeting in the Senate about the latest energy conservation plan. The VAT reduction was exactly one of the proposals put forward by the popular this week in response to that parliamentary meeting.

The price evolution, which passed 300 euros/mwh in August, and especially the unflattering outlook for the coming months, led the Executive to take this decision at the beginning of a winter when gas bills could rise dangerously. Russia’s decision to cut off the gas pipelines to Germany or France, among others, has revolutionized the gas market, which in turn has increased electricity bills by using this raw material to produce electricity through power plants.

This VAT reduction for gas is in line with the reduction in the same tax that the government has already reduced since the spring for the electricity bill from ten to 5%. It is the minimum tax allowed by the European Commission.

In the case of the bill with regulated gas tariffs, the so-called TUR, price increases have been curbed since November last year. With each quarterly review of this rate, the executive maintains the discount, while at the same time including the fee for not having the receipt as high as he should have due to the evolution of the market.

Despite the various measures taken by the government over the past year to try to contain electricity and gas bills, the reality has largely offset the effects of these plans. In addition to the VAT reductions on the electricity bill, the management has also reduced the special electricity tax to 0.5%. As well as numerous fixed charges that are usually included in the bills paid by citizens. In addition, since June 15, the Iberian mechanism has been in force that allows limiting the price of gas to form the cost of daily electricity in Spain. The government president has assured that while these prices have risen this summer, the increase would have been up to 15% higher compared to the rest of Europe if the Iberian limit had not been applied.

August has become the most expensive month in history for electricity bills, especially those linked to the regulated tariff or PVPC. The rise in the gas price on the international market under pressure from Russia and the need to supply reserves by all European countries has pushed average production costs to more than EUR 300 per megawatt hour. This is a reference to a higher than the one in March, just the month after the start of the Russian invasion of Ukraine.

On the other hand, reference was made to the emergency plan that the government is preparing and that it must send to Brussels after consultation with the autonomous communities, parliamentary groups, associations and agents of the sector concerned. The government president has asked not to fall into catastrophe or euphoria, although he has indicated that Spain is in a better gas supply position than the rest of its European neighbours, thanks to its regasification facilities. The contingency plan proposes several scenarios, the most extreme of which assumes the possibility of gas rationing, although executive sources themselves maintain that this is a minimal possibility.

As an emergency plan, which proposes different scenarios for the coming winter, it ties in with the energy-saving plan already approved by Congress last week, which included adjusting the temperature in public places, as well as turning off the lights in shop windows. and public monuments, and other measures to reduce electricity consumption and thus that of the gas used to produce light by about 7% compared to the 15% originally required by the European Union.

Source: La Verdad

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