The Spanish government has approved a package of 80 measures to tackle rising energy prices and mitigate the broader economic impact of the war in the Middle East.
Spain's Prime Minister Pedro Sánchez said his government would mobilise €5 billion to shield the economy from the impact of the war in Iran.
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"The war will cost Spaniards €5 billion," he said, adding that additional resources could be deployed if necessary.
The package is designed to support around 20 million households and 3 million companies. While it will not fully offset the effects of the conflict, the government hopes it will soften the economic blow.
Sánchez also said that the measures will save up to €200 million for energy-intensive industries.
Among the main measures is a reduction in VAT on fuel from 21% to 10%, alongside a cut in excise duties on hydrocarbons, aimed at easing the cost of petrol and diesel amid continued pressure on energy markets.
VAT on natural gas will also be reduced to 10%, while the retail price of butane and propane will be frozen. The VAT cut on petrol is expected to translate into a reduction of around €0.30 per litre for some fuels.
The package also includes measures targeting household energy consumption. VAT on electricity and gas will be lowered to 10%. A further indirect levy on electricity will also be reduced; the 5% tax is widely included in consumer bills, though paid by energy companies to the Treasury.
In addition, the government will temporarily suspend the tax on the value of electricity production, in a bid to reduce system costs and prevent them from being passed on to consumers.
Tax cuts and stronger social protections
The government also plans to revive a number of social measures that previously failed to pass through parliament. The current package includes strengthening subsidised electricity support for vulnerable households and a ban on cutting off water or energy for the most vulnerable households.
However, the decree will not, for now, include housing measures such as rent caps or mortgage support, despite calls from the Spanish left-wing political coalition Sumar.
The package, which has to be approved by Congress, aims to mitigate the energy shock and to contain its impact on inflation.
