Spain | Fiscal shield against the energy crisis: timely and temporary, but not targeted

Summary

The government’s measures arrive on time and can cushion part of the war’s impact on economic activity and prices if the shock is temporary. If energy prices continue to rise, more targeted measures will be needed—ones that do not distort price signals.

Key points

• Key points:
• The announced fiscal package, equivalent to 0.3% of GDP, represents a monthly cost of €1 billion. It will allow headline inflation in April to be up to 1 percentage point lower and could have a positive impact on GDP of between 0.1% and 0.2%.
• The adequacy of the measures will depend on how much energy costs increase and how long they remain at elevated levels.
• A structural response requires avoiding demand stimulus in the face of supply constraints, targeting limited resources toward the most vulnerable households and firms, and reducing dependence on imported fuels.
• It is necessary to replace across-the-board tax cuts with direct support such as the social bonus, personal income tax (PIT) credits for low-income households, or increases in the Minimum Vital Income.

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