The European Commission has granted Spain a three-week extension to meet the milestones and targets associated with the fifth payment of its recovery plan, with a particular focus on raising the diesel tax.

This tax reform has sparked contention among government coalition partners.

Brussels had initially set a deadline of March 21 to evaluate the 84 commitments related to the €23.9 billion disbursement, which includes both grants and loans.

The extension was requested by Spanish authorities on March 3, and the new deadline is now April 11.

Sources confirm that Spain’s request for an extension was accepted, emphasizing that another inspection of the diesel tax reform is essential, alongside other targets of the fifth payment request.

This particular disbursement consists of 84 milestones, of which 55 have already been addressed ahead of future payments, amounting to €8 billion in subsidies and €15.9 billion in loans.

Conditioning part of the direct aid are reforms to raise the diesel tax, supported only by the left-wing party Podemos if a permanent tax on energy companies is also introduced.

This latter measure has faced setbacks in Congress, failing to gain the necessary backing from other political parties.

The Spanish government has indicated that it is pursuing dual negotiations: one with the Commission characterized by constant dialogue and another domestically with parliamentary forces to implement the tax deemed vital for achieving price equality and shifting emphasis towards electricity over fossil fuels.

The required reforms for Spain include environmental taxation adjustments, corporate taxes, wealth taxes, health taxes, and personal income taxes, which will consist of the implementation of increases in diesel taxation.

Moreover, these measures are expected to lead to a permanent increase in revenue amounting to at least 0.3% of GDP, equating to around €4.5 billion.

The proposed diesel tax increase does not jeopardize the overall €23.9 billion disbursement; however, failure to comply with this specific milestone may result in a partial deduction from the total amount as determined by the European Commission.

Additionally, the assessment for Spain’s fifth payment includes a milestone related to the digitalization of small and medium-sized enterprises (SMEs), which is critical for unlocking €138.6 million from the previous disbursement.

The transport sector has voiced significant concerns regarding the potential impact of the proposed tax increase.

Industry representatives have warned the government of the ramifications of aligning diesel tax with that of gasoline, asserting their refusal to accept any imposition that raises operational costs.

They are contemplating immediate mobilizations, including strikes if the government proceeds with its plan for a decree-based tax increase.

The transport sector estimates that this tax rise could lead to a cost increase of €0.10 per liter, posing a severe financial burden on transport companies and independent operators.

According to industry associations, the government could gain an additional €2.5 billion in revenue from the increased tax on the 25 billion liters of diesel consumed each year in Spain, half of which pertains to professional activities, representing approximately €1.75 billion in additional revenue.

The remaining tax burden would be placed upon private drivers.