Spain overhauls fuel taxes, extends crisis package and sets budget timeline as EU diesel deadline looms
The Spanish government approved a revamped anti-crisis package on Monday, replacing a broad VAT reduction on fuels with a temporary discount via the hydrocarbons tax that will phase out by October, while also taking the first formal step toward its 2027 budget.
Fuel tax overhaul
The European Union had criticised Spain’s use of a reduced VAT rate on petrol and diesel, prompting the government to redesign its fuel support. From Wednesday 1 July, VAT returns to its standard 21 %, but a new rebate on the Special Hydrocarbons Tax (IEH) kicks in. The discount starts at 15 cents per litre in July, falls to 10 cents in August and to 5 cents in September, before disappearing entirely on 1 October. If fuel inflation exceeds 15 %, an automatic safeguard will restore a 20‑cent discount. Professional drivers, farmers and fishermen will keep the current 20‑cent rebate until the end of September.
As international market prices fall, we will progressively withdraw the support for fuel tax reductions.
Electricity tax twist
The decree phases out the 7 % tax on the value of electricity production (IVPEE). It drops to 5 % for the rest of 2026, to 3.5 % in 2027 and is abolished in 2028. Economy minister Carlos Cuerpo said the move will cut household electricity bills by about 6 %. At the same time, the government restored the Special Electricity Tax from 0.5 % to 5.1 %, ignoring a European Commission recommendation to keep it low. Sector experts estimate the hike will bring in roughly €500 million of extra revenue this year, offsetting part of the IVPEE giveaway.
Budget path
The Council of Ministers also approved the macroeconomic framework that will underpin the 2027 budget, the first draft since 2023. A vote on the deficit path is scheduled for 14 July, but the minority government lacks guaranteed support. The full budget is expected to be presented in late September.
EU diesel‑tax ultimatum
Separately, Brussels reminded Madrid that it must implement a diesel‑tax increase by 31 August to unlock €475.3 million of frozen Next Generation funds. The commitment to end the favourable tax treatment of diesel is a milestone in Spain’s Recovery Plan, but the government has so far been unable to secure parliamentary backing. The deadline is final; after 2026 the Commission cannot raise funds without unanimous EU agreement, which it deems unattainable.
Fiscal backdrop
Despite the tax relief measures costing slightly more than €5 billion this year, tax revenues surged 10.4 % year‑on‑year in May and 10.6 % cumulatively over the first five months of 2026. Strong growth, inflation and rising wages pushed collection to €135 billion in that period, more than double the cost of the crisis package.
- Government approves revamped anti‑crisis decree and macroeconomic framework.
- VAT returns to 21 %; IEH discount of 15 cents/litre begins.
- Parliamentary vote on deficit path.
- IEH discount drops to 10 cents/litre.
- EU deadline for diesel‑tax reform to avoid losing €475.3 million.
- IEH discount falls to 5 cents/litre.
- Anti‑crisis measures expire; professional fuel bonuses end.
- IEH discount removed completely.
