Ángel Collado
Pedro Sánchez’s government, once again at the back of the European Union in terms of decision-making -this time in the face of the energy and inflation crisis- continues to be paralysed while waiting for the EU itself to save it from lowering taxes in Spain.
The government has the usual internal problem of division of opinion between the socialist and communist sectors, plus the scant economic margin left by the runaway public deficit (the second highest in the Union) and an accumulated debt of 122 per cent of the Gross Domestic Product.
Sánchez is pinning everything, including his personal image campaign, on a European decision to cap the price of electricity while he avoids taking measures against the rise in fuel prices.
Neither the outbreak of protests by farmers and livestock farmers in the streets nor the transport strike have moved the head of government from the deadlines he has given himself for not taking action on the matter. After the majority of EU countries announced and applied tax cuts or direct aid to alleviate the rise in fuel prices, Sánchez is now on a tour of these same countries to get the EU to change the price-setting model for the electricity market. He is buying time and waiting to see if the European Council at the end of this week will see a change in EU criteria before he has to decree any measures.
The ministers repeat in chorus that there will be a decree of “urgent” measures against the rise in energy prices at the Council of Ministers on the 29th, a month after the war in Ukraine destabilised everything and three weeks after the other countries applied measures to alleviate its effects on the markets and on consumers, companies and citizens.
Sánchez is launching a project to set a European cap on electricity prices at 180 euros per kilowatt on the wholesale market compared to the current 220, which would be a return to the rates prior to October last year, already considered scandalous at the time. Its extreme left-wing populist partners (Unidas Podemos), with five ministers in the government, are back on the attack with a proposal for a new tax hike on the profits of electricity companies, the reissue of a project that ended in failure last October.
The regulatory change at that time, with an announced express cut of 2.6 billion euros, did not serve to halt the escalation of prices, which continued to rise. Moreover, investors threatened to leave and companies threatened to pass the cost overruns on to large industry. The government backed down the following month and the National Commission for Markets and Competition still finds no evidence that companies have benefited from the high international price of gas in their electricity production. And that was the theoretical basis for the failed intervention, so they have not had to pay the state the billions of euros announced for the time being.
In the case of fuels, the paralysis of the social-communist government has a fundamental economic component beyond its ideological fondness for tax hikes. With an accumulated debt of 122 per cent of gross domestic product and the second highest public deficit in the EU, Sánchez has no margin for setting direct subsidies on fuel purchases as France does (15 cents per litre) and is trying to delay a tax cut.
Almost half of what each litre of fuel costs the consumer (between 41 and 46 per cent) is revenue for the state. In addition to the 21 percent VAT, the hydrocarbon tax alone brought in 11 billion euros for the state coffers last year. The latest rise in petrol and diesel fuel prices is causing losses for the transport sector, farmers and livestock breeders, threatening the profitability of industry as a whole and destabilising family economies. But for the Treasury it means raising some 250 million more per month.
The government can lower the excise tax on hydrocarbons whenever it wants, as it is a national competence, and even VAT, as Poland has done, to 8 per cent, without Brussels raising any objections.
Sánchez is merely playing for time, and while one sector of his government promises to lower all energy prices through the Minister of the Presidency, Félix Bolaños, the other sector, headed by the communist Yolanda Díaz, argues that taxes should not be lowered “in general” and only create another special tax for electricity companies.
