Spain to Trim Fuel Subsidies to Refocus on Low-Income Customers

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(Bloomberg) — Spain is planning to scale back government subsidies for fuel at the pump by the end of this year to shift the focus to low-income customers.

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The government is working on a revised mechanism that would allow it to determine who qualifies for the aid, ending a blanket program that benefits everyone regardless of income, according to a person familiar with the plan, who asked not to be identified discussing confidential information. The aim is to have the new system in place before the end of December, the person said.

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A spokesperson for the prime minister’s office in Madrid declined to comment.

Under the current mechanism, which has an estimated annual cost for the government of €6 billion, customers receive a discount of €0.20 ($0.21) per liter of fuel, with the government paying €0.15 and oil companies — including Repsol SA, Cepsa SA and Galp Energia SGPS SA — covering the rest.

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Trimming the aid program will give the government some fiscal relief, and potentially help counter criticism from opposition lawmakers, who say the current system is unfair. Filling-station operators have also complained about the subsidies, saying that their facilities are barely profitable.

Central bankers and economists have meanwhile warned that European governments may inadvertently boost the case for higher interest rates by failing to focus measures such as energy-bill relief on the most vulnerable businesses and families.

The fuel subsidies are the most expensive element of a wider package of Spanish government measures worth about €35 billion to help households and companies struggling with soaring energy costs. The package has helped contain inflation, which eased for a third consecutive month in October.

Economy Minister Nadia Calvino, who is also a deputy prime minister, said this month that it would be difficult for the government to maintain the fuel subsidies over the next year, and that it was considering refocusing them on truckers and the rest of the transport sector.

The government is also working on a new aid package for gas-intensive industrial users, such as ceramics and fertilizer companies, Bloomberg reported last week. A decree setting out the measures could be published as soon as next month.

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