The light has accelerated its escalation and, to try to stop the political wear and tear, the Government is preparing a battery of measures to be approved next Tuesday in the Council of Ministers. The negotiation of the fourth vice president, Teresa Ribera, with the Ministry of Finance to accommodate tax cuts is not being easy. The reason is that the Executive has very tied hands for any fiscal movement and some of the ideas put on the table in recent days could collide with Brussels.
One of them is apply a super-reduced VAT of 4% to light, something that many groups demand but that would generate a problem for the Government, since could force Spain to raise VAT on other basic products to 5%, such as bread, milk and eggs, according to several tax experts consulted by this newspaper.
In order to act on VAT, Spain would need the approval of Brussels and one directive of the year 2006 it marks the way forward before any modification that the Government wants to carry out.
Spain is next to Luxembourg and Italy the country that has the lowest VAT rate for basic necessities. In fact, the aforementioned directive establishes that in the event of any change in the products affected by this super-reduced tax, our rate would have to go from 4 to 5%.
“It would be to dress a Saint to undress another because would force to raise the Value Added Tax of products such as bread“warns a tax expert. In addition, the effectiveness of the measure would be limited, taking into account that the origin of the electricity problem is not in taxes, but in the price of energy – fundamentally, of gas – and in CO2 rights.
From Gestha (Union of Technicians of the Ministry of Finance), they recall that there is an exception to which the Government could take advantage of by virtue of article 114 of said directive. However, other experts consulted consider that It is not likely that the EU VAT Committee allowed to include the light in this singularity, for which other goods and services could be found in an annex to that European standard.
Among the arguments that European officials would use before this Spanish request is a fundamental one: the European countries that have electricity among the services subject to the lowest rate apply 5%, compared to the 4% that the Spanish Government would request.
A) Yes, Brussels would have the last word, since any change made to VAT has to have your approval. Therefore, it is important to keep in mind the well-known position of the European Commission that Spain must increase its collection for indirect taxes. In short, opening this melon could generate more problems for the Pedro Sánchez government than leaving things as they are.
Structural deficit
Until now, the tax cuts on electricity approved by the Ministry of Finance have been temporary. Specifically, at the end of July a reduction of VAT on electricity from 21 to 10% was approved until the end of the year and the temporary suspension of the electricity generation tax during the third quarter of the year.
The conjunctural character One of these measures contains another weakness for Spain when it comes to managing taxes on electricity.
Any changes made to the taxes with a definitive character it will have a direct impact on the structural deficit. Hence, the Government uses as a first option that of continue applying temporary discounts that allow sustaining before the European Commission that this lack of income is going to be temporary. It trusts, in this way, that the gas escalation will end up happening in a few months and allow a drop in the receipt of homes and companies.
In addition, consulted fiscalists warn of the danger that the Executive runs if it begins to lower taxes in a precipitous way, since it can produce a “translation effect” that ends up benefiting some groups and harming others who are intended to help. This was the case with deductions for housing, which ended up being a business for sellers rather than mitigating the effort of buyers.
Thus, before delving into this field, it would be pertinent to carry out a study on how the temporary tax suspensions applied to receipts have worked in recent months.
More measures
Another tax that the Executive studies to touch is the special tax on electricity. In this case, a collection problem would be opened for the autonomous communities, which keep a part of this tax.
However, from the point of view of the country’s competitiveness, this option would be more interesting than any movement on VAT.
The reason is that companies deduct Value Added Tax, while the cost of special charges for light is fully assumed.
The problem is that Autonomous governments could demand compensation at a time when public accounts are in a vulnerable situation due to the pandemic, despite European aid and the flexibility of the European Commission with the deficit.
Calvin’s notice
In this complex situation, the first vice president, Nadia Calvin, has already warned that any decision made by the Government next Tuesday will have to be “sustainable from a fiscal point of view”.
To try to alleviate the effects on the most vulnerable groups of the increase in electricity bills, the Government is exploring with the Ministry of Inclusion, Social Security and Migrations alternative ways to advertise aid for low-income households.
However, none of these decisions tackles the problem at source: the increase in electricity prices in the wholesale market. Hence, there are many doubts about the Prime Minister’s ability to deliver on his promise to lower electricity prices to 2018 levels.
To achieve this goal, Ribera is studying proposals aimed at setting an electricity rate with long-term auctions that keep household bills away from market volatility.
The Government has little margin and until the rise in gas and CO2 does not reach the receipts of consumers in the free market and, therefore, affects other European governments, it will have little help from Brussels. The problem is, you don’t have time to waste. The polls already reflect their wear and tear on this matter and the different ministries have been analyzing all kinds of options for days to arrive next Tuesday with a proposal capable of curbing that social anger.
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Reference-www.elespanol.com