Say goodbye to VAT on olive oil. At least temporarily. The government decided to bring to the Council of Ministers on Tuesday the maximum reduction in the “liquid gold” tax, which will be reduced to 0 percent from July 1, as approved by the Ministry of Finance today. The measure is not entirely new. It was included in the agreement reached with Junts in January in exchange for its support for anti-crisis decrees, and in March PSOE and Sumar formalized it in Congress.

What is new is the context in which it will be applied. After years of brutal price increases, the reduction of VAT to 0% comes just as the Government was expecting a drop in the price of oil due to the good progress of the harvest.

What happened? The government decided at the Council of Ministers on Tuesday to give the green light to the maximum reduction of VAT on olive oil, which will remain at 0%. The decision was announced this morning by the SER and was approved by María Jesús Montero’s department. The news is interesting for two reasons. First, because it determines the date of the discount: It will be applied with the month change. The second is that the VAT review has a structural nature.

But beyond 0%? The Treasury also decided to permanently distribute eggs, vegetables, fruits and bread, as well as liquid gold shares, which are called the basic product group. And this is important at tax level because it outlines a VAT reduction scenario beyond the specific reduction.

As Europa Press noted, the change will ensure that olive oil will be included among goods and services with a super-reduced VAT of 4% under normal conditions, instead of being included in the group of goods with a 10% reduced tax.

Is it an expected precaution? Yes, although next week’s decision by the Cabinet to approve the reduction will be news, in reality the 0% reduction responds to the agreement reached between the PSOE and the Junts more than six months ago that this latest formation should bolster anti-Government support. -crisis decrees. Months later, in March, the Government parties PSOE and Sumar also formalized the reduction of VAT on olive oils to 0% at the Congress.

This is not the only decision the government made regarding food prices in June. A few days ago, President Pedro Sánchez also announced that, given the “high” prices of some products, the VAT reduction, which will end next week on Sunday, June 30, will be extended.

Why was VAT reduced? In the case of olive oil, a product that is widely consumed in Spain and has a significant weight at the economic and labor level, the aim is to alleviate the brutal price increase it has experienced in recent years. INE data is open. And they leave little room for interpretation. In May, olive oil was 62.8% more expensive than a year ago.

Looking back further, the cumulative increase in prices since January 2021 reaches 198.5%. So in just three years the price of a bottle of oil has almost tripled. In this context, the Administration had already reduced this rate from 10% to 5% in 2023. Now it goes further and leaves VAT at a minimum.

So what is the situation now? Although the reduction of VAT to 0 percent would help mitigate the dizzying price rise that oil has accumulated in recent years, the truth is that the Treasury acted according to a very specific scenario. Just when its cost was expected to decrease and there were signs of optimism among consumers.

A monthly decrease of 2.1% was recorded in olive oil in May; It’s a small percentage, but in any case it represents the first monthly cut since the beginning of 2023. Last week, the Ministry of Economy celebrated the decline in inflation. Food prices rose by three-tenths in May and he insisted the price of oil was “at the forefront” of this price moderation.

What does the industry expect? This is another key. The Council of Ministers will approve the reduction of VAT on liquid gold to 0 percent, just a month after the meeting in which the Sector Table of olive oil and table olives gave signs of optimism. At its meeting in mid-May, the industry recorded significant growth in the production campaign through April. More precisely, he was talking about 850,157 tons, an 11 percent increase compared to initial estimates and a 28 percent increase compared to the previous campaign. Professionals also warned of a “good pace of commercialization”.

“As for the next harvest, it is predicted that there will be a recovery in production thanks to the rains and good weather conditions in recent weeks. “As a result, prices are expected to be below the high levels recorded in the current campaign,” the ministry acknowledged, insisting on the final message: a possible price drop in the next campaign.

Image | Miguel Ángel Masegosa Martínez (Flickr)

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