Energy aid that Brussels asks Spain to withdraw: how will it affect the price of electricity, gas and fuel?

electricity bill

At the end of June 2021, with the cost of electricity chaining up from the start of the year, the government approved a reduction in VAT on electricity from 21% to 10%. It was the first of many measures that have since been implemented to try to cushion the impact of the biggest increase in energy prices ever recorded.

Nearly two years after that first decision, with the effects of that energy crisis already looming large, the European Commission has now proposed that the time has come to withdraw aid. This Wednesday, it was generally recommended to all member states to eliminate them before the end of 2023, when financial regulations recover, Which have been suspended for years due to the pandemic.

In the case of Spain, Brussels insists that the money left over from withdrawing aid should be used to reduce the deficit. However the government has already promised to cap it at 3% of GDP (causing a fiscal imbalance) in 2024, a year ahead of schedule. In 2023, Moncloa expects it to remain at 3.9%.

“The energy bill that consumers have been paying has dropped significantly over the months and is below the level before the invasion of Ukraine. Once the energy shock is behind us, these support measures can be completely reversed. Couldin which doing so assumes relevant effect”, defends María Jesús Fernández, senior economist at Funcas.

He acknowledges that this would make the energy more expensive than maintaining the aid, but warns that it is doable. “The deficit must be fixed, it is the main vulnerability that the Spanish economy now has.”

Jorge Galindo, deputy director of EsadeEcPol, who considers the request to withdraw energy aid “inevitable”, also supports Brussels’ recommendation. “Whatever scenario we face from next year onwards, we should set a sustainable fiscal path. We must fund radical changes to our energy systems, but to do so To do that, you have to be financially reliable”.

The measures the EU wants to end

Given the guidelines set by the commission, the government has already said it advocates a careful analysis of which aid can be retained and which can be “lifted”. The Third Vice President and Minister of the Ecological Transition and the Demographic Challenge told this Thursday, who acknowledged that in these months the concern of raw material prices is diminishing and that he was betting on being more selective in the so-called ‘social shield’ initiative “balanced answer should beObviously, there can be areas, areas, where it is important to maintain the aid”, pointed out Teresa Ribera.

The measures approved, which are in force from mid-2021, and whose possible abolition will affect the prices paid by consumers:

Further, in the measures extended to deal with the energy crisis, Prohibition of cutting off basic electricity, water and gas supplies Consumers vulnerable to default; 80% waiver of electricity toll for power-intensive industry; Maximum ceiling of sale price of 19.55 Butane cylinder. The extension of social bonus coverage or the extension of the tariff of last resort (TUR) for natural gas to all households, regardless of whether they have individual or community boilers, was also extended to all until 2023.

What if prices go up again?

European Commission calls for focus on scrapping energy aid when prices come up they are already far from the maximum Arrived in the spring and summer of 2022. According to the CPI data for the month of April, the price of electricity will be lower than that marked at the beginning of 2021.

Based on the INE reference, gas for its part will still be at the level of the beginning of 2022. Nevertheless, prices on this futures market, the Dutch TTF, were located this Thursday less than 25 euro per megawatt hour, Not so far from the 16 Euro MWh that it was marked just two years ago.

With regard to fuel, the average price of diesel (1.409 euros per liter) and gasoline (1.576 euros) has been trending downward for several weeks, marking annual lows and below the level before the start of the war in Ukraine Is. “In this regard, it should be kept in mind that oil is probably going to remain at higher levels for a long time beyond 2019 from now and it is not feasible to think of subsidizing the fuel permanently. Will have to adapt to the new cost landscape”, reiterated the Funkas economist.

In any case, and despite the general reduction in energy prices, the European Commission does not deny that new support measures will have to be implemented if there is a new increase. makes it clear to governments that they have to be Whose purpose is to protect families and vulnerable peopleShould be financially sustainable and should maintain incentives for energy savings.

This specific idea of ​​the Brussels recommendation has been prominently highlighted by the person in charge of EsadeEcPol in terms of general tax exemptions or deductions. “The habit of redistributing through indirect taxes is costly to the public coffers and inefficient. Although low-income households save proportionately more, the money that is not collected stays in the disproportionately large, richest households. It is slower and more expensive to introduce targeted aid in an emergency than to cut indirect taxes, but that option is bread for today and hunger for tomorrow.

VAT reduction on food

One of the latest measures implemented to combat the effects of that energy crisis, which eventually turned inflationary, also included another general tax cut. In particular, VAT on basic food products, to try to reduce the sharp increase registered last year. It came into force at the beginning of the year and extends in principle, By 30 June, with an estimated cost of 800 million euros,

With regard to this initiative, the government does not want to speculate that it will still be extended during the second half of the year and defends the need to know the evolution of prices, assuring that great volatility will remain.