(Bloomberg) -- Spain plans to hand out an extra 9 billion euros ($9.5 billion) in new tax breaks and direct aid to soften the impact of soaring prices threatening the euro area’s fourth-largest economy.
Prime Minister Pedro Sanchez’s cabinet approved reducing the value added tax on power bills to 5% from 10% and handing out 200 euros to vulnerable workers. He said his government will work on new legislation to tax the windfall profits of power companies, starting next year.
“The tremendous uncertainty lingering over the world has led us to take these additional measures,” Sanchez said in a press briefing after an extraordinary cabinet meeting on Saturday. The announcement follows days of tense negotiations with the junior coalition partner, Podemos, which demanded an immediate increase in taxes on energy companies.
Other emergency measures, such as a fuel discount of 20 euro cents a liter, due to expire at the end of June, will be extended until late December, Sanchez said. The steps, contained in an executive decree, still need to be ratified by parliament.
These actions are the latest effort by Sanchez to appease voters’ concerns over inflation that is running at a three-decade high, stoked by the energy crisis that has followed Russia’s invasion of Ukraine. Small truck owners are threatening to resume a protest that nearly brought the country to a halt in March.
“It is possible to mitigate the economic and social effects of this war, and its burden to be shared more fairly,” Sanchez said.
A surge in the cost of everything from electricity to cooking oil and beer helped the conservative Popular Party trounce Sanchez’s Socialists in regional elections in Andalusia a week ago. The defeat in the Socialists’ historical stronghold highlights the challenges he faces to retain power in general elections expected in late 2023.
The new measures coupled with those announced in March will cost the government around 15 billion euros this year, Sanchez said. The actions taken by the government to combat inflation should reduce the consumer price index by 3.5 percentage points, he said.
Other measures approved by the cabinet on Saturday include:
- Reduce the price of public transportation offered by the central government and regions
- An increase of 15% in non-contributory retirement and disability pensions
- A limit on the price of butane gas
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