This Monday, in an extraordinary session, the Council of Ministers approved a new royal decree that extends fuel aid, a series of measures that were activated after the start of the war between the United States and Iran. The most visible measure for drivers is that the reduction in the price of fuel remains, but it will be reduced month by month until it disappears completely in October.
There was a meeting pending. The previous package of measures expired on June 30, which has forced the Government to convene an extraordinary Council of Ministers to approve the extension before the deadline expired. If not, the aid would have been withdrawn suddenly, significantly increasing the price of fuel, as we anticipated a few days ago.
What does it consist of? now it’s discount. Unlike the previous plan, which applied a reduction in VAT, the new mechanism acts on the special tax on hydrocarbons. The discount starts at 15 cents per liter during July, drops to 10 cents in August, stays at 5 cents in September and disappears in October.
As explained by the first vice president and Minister of Economy, Carlos Body, “the relief in the cost of gasoline and diesel will continue and we will adapt it to the normalization of crude oil prices so that a jump is not noticeable.”
You have touien stays the same. Transporters, farmers and fishermen do not notice any changes, maintaining the discount equivalent to 20 cents per liter, without progressive reduction. In addition, the decree extends aid by 165 million euros so that the agricultural sector can purchase fertilizers, the cost of which is expected to be higher in September.
Insurance in case prices rise again. The decree includes an automatic reactivation clause. This means that, if fuel inflation exceeds 15% in year-on-year terms, the discount returns to 20 cents per liter without the need to approve new measures. The Corps does not rule out new actions starting in October if the situation demands it.
What is not extended. The VAT reduction on electricity and gas, which had already returned from 10% to 21% since June 1, is not recovered in this decree. According to the National Institute of Statistics (INE), precisely this fiscal normalization explains why electricity and gas are now contributing to the rise in the CPI, which remained at 3.2% in June for the third consecutive month.
The most relevant structural measure. Aside from this aid, the new decree also establishes the progressive elimination of the Tax on the Value of Electrical Energy Production. Currently at 7%, it will drop to 5% this year, to 3.5% in 2027 and will disappear in 2028. The third vice president and minister for the Ecological Transition, Sara Aagesen, estimated the potential savings on household bills at 6%. According to Aagesen, this is “the only structural tax reduction in the anti-crisis shield.”
How much does all this cost? The entire package mobilizes 4,525 million euros: 1,825 million in direct fiscal cost for 2026, plus another 2,700 million associated with the gradual elimination of the tax on electricity production in the next two years.
Why these measures. The Government justifies the decision in that there is still geopolitical uncertainty. The truce in the Middle East remains fragile, traffic through the Strait of Hormuz has not completely normalized and the Government fears a rise in inflation coinciding with the start of the summer holidays. According to calculations by the Ministry of Economy, the measures in force since March 20 would have contained general inflation by around one percentage point.
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