Spain Resets VAT on Staple Foods as Economic Measures Evolve

As the year 2024 comes to a close, Spain is implementing several significant economic measures that will impact the daily lives of its residents, including expats. One of the key changes involves the Value Added Tax (VAT) rates on staple foods, a move that follows a period of economic adjustment and inflation management.

VAT Rates on Staple Foods

From January 1, 2025, the VAT rates on various staple foods will return to their pre-crisis levels. Throughout 2024, the Spanish government had reduced the VAT on essential items such as bread, eggs, vegetables, and fruit to 2% as part of its efforts to mitigate the effects of inflation. However, with the moderation in prices, these rates will now revert. For instance, the VAT on staple foods like bread, milk, and olive oil will increase to the super-reduced rate of 4%, while pasta and seed oils will be taxed at the reduced rate of 10%[1].

Olive Oil Gets Special Treatment

In a notable exception, olive oil will continue to benefit from the super-reduced VAT rate of 4%, a change from its previous 10% rate. This move reflects the government's ongoing support for this essential commodity in Spanish cuisine[1].

Public Transport Subsidies Extended

In addition to the VAT adjustments, the Spanish government has extended public transport discounts for another six months until June 30, 2025. This decision follows a political negotiation with the Podemos party, which had threatened to scrap the subsidies. Since their introduction in 2022, these subsidies have led to a 13% increase in the use of public transport. From July 1, 2025, a new model will be introduced, featuring a single Cercanías season ticket for 20 euros across the entire country, with regional transport maintaining at least a 40% discount. Young people between 15 and 26 years old will pay only 10 euros, and those under 15 will travel for free[1].

Economic Growth and Job Creation

Spanish Prime Minister Pedro Sánchez highlighted the country's robust economic growth during the last cabinet meeting of 2024. Spain has created 400,000 jobs in one year, making it one of the fastest-growing economies among major world powers. Sánchez expressed optimism about 2025, citing the significant contribution of European funds to modernize Spain's productive sectors, particularly in consultancy and technology[1].

Other Economic Measures

The government has also decided to extend restrictions on foreign takeovers of strategic Spanish companies until the end of 2026. This measure, introduced in 2023, requires authorization for foreign entities acquiring major stakes in companies related to defense, healthcare, or telecommunications.

Additionally, social protection measures for vulnerable consumers will continue, with discounts on electricity, water, and gas bills. Vulnerable consumers will receive a 50% discount on their electricity bills from January 1, 2025, decreasing to 42.5% from July 1, 2025, and stabilizing at 35% from January 1, 2026. Severely vulnerable consumers will benefit from even higher discounts[1].

Diesel Tax Postponement

The government has backed down on its plan to increase the diesel tax, a measure that was expected to raise an additional 1.5 billion euros annually. This decision comes after negotiations with Brussels, and the tax is now expected to be implemented in April 2025, pending further discussions[1].

As Spain navigates these economic changes, expats and residents alike will need to adjust to the new VAT rates and other fiscal measures. The extension of public transport subsidies and the continued support for vulnerable consumers are positive signs of the government's commitment to economic stability and social welfare.