Policies to improve purchasing power                       

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The Andorran government has submitted a draft law with a series of measures aimed at improving the purchasing power of its citizens. Price increases due to inflation, combined with the negative economic consequences of the COVID-19 pandemic, have caused families to experience a considerable reduction in their purchasing power.

The package of economic and social proposals first appeared at the end of April, followed by the draft law to give them emergency status on 7 June, although some of these measures were already approved between April and May. They mainly focus on increasing salaries and pensions, as well as implementing housing benefit and reduced VAT, among other policies. But they also include environmental actions focused on promoting energy saving.

The government plans to invest a total of 10 million euros in this plan.


Table of contents:

  1. Improving wages and pensions to boost purchasing power
    Tax improvements
    Environmental actions
    Other social measures

Improving wages and pensions to boost purchasing power

Increasing the lowest salaries

The first major governmental social measure is to increase the lowest salaries, the cost of which will be borne by employers.

The government has introduced a statutory increase for salaries below the average figure of €27,130.44 per year. The increase is 3.3%, which corresponds to the CPI for December 2021. It came into effect from 1 June and is intended for employees who did not receive this wage increase in the last 12 months.

The minimum wage has also been raised to €1,200 per month. This change represents an increase of 7% in 4 months, thanks to the annual increase in January, corresponding to the CPI in December (3.3%), and a second in April (+3.67%). It was implemented in May as an emergency measure.

Indirectly, wage increases have an impact on other social security contributions and the recovery of taxes.

 

Pension increases

Social Security pensions with monthly amounts below the minimum inter-professional wage will be increased by 3.67% from 1 June. This relates to retirement pensions, widows’ and widowers’ pensions, disability pensions due to non-occupational and occupational accidents, and pensions for common or occupational illnesses, and will be applied when the individual concerned has contributed for at least 25 years. The law also stresses that the total cost will not be assumed by social security but by the Andorran government, so as not to affect the CASS (Andorran Social Security Fund) pension system.

 

Tax improvements

Reduction of IGI

IGI on baby-related items such as nappies and feminine hygiene products is being reduced from 4.5% to 1%. This measure is also in line with equality policies in other countries.

Fuel tax

This has already been implemented, in some cases retroactively from 1 January, depending on the type of vehicle. The hydrocarbon tax has been reduced for company vehicles to prevent them from having to raise their prices. The government estimates that this will benefit around 1,400 vehicles, and the measure will remain in place depending on increasing energy costs.

The empty homes tax

The draft law includes a provision proposing that the tax collected on empty dwellings be used for the development of social or affordable housing.

Tax obligations

The obligation to file accounts for companies with an annual turnover of less than €150,000 is being withdrawn for 2022. This requirement has been postponed until 2024, for filing accounts relating to the financial year starting in 2023.

The obligation to submit comparative notes to the annual accounts has also been removed.

Environmental actions

Encouraging self-consumption of energy

The law includes a provision related to the production and consumption of energy. In this regard, it has amended Law 21/2018 on the promotion of energy transition and on climate change (Litecc), removing the obligation to produce electricity at the place of consumption, thus allowing for self-consumption.

 Extraordinary aid for energy saving in houses

The government has approved an extraordinary budget of 1.5 million euros for the Renova Plan. This aims to subsidise the switch to more efficient heating systems, installations of photovoltaic solar panels and the replacement of windows. It will be awarded though a bidding process and is for residential dwellings, where 70% of the dwellings are the primary residence, either owned or rented, with a maximum surface area of 130 m2.

 

Other social measures

The first proposal put forward by the government in April included a series of modifications to ensure that housing and training assistance can reach more people.

Housing

The criteria for accessing this aid have been made more flexible, as applications may now be submitted after 3 years of residence, whereas before it was 5 years.

Training

These grants are intended for students in both higher and compulsory education. The associated text proposed to increase income so that more students could benefit from them.

Public transport

Another of the measures is to create a free monthly season ticket for all residents and to lower the price of school transport to benefit more families. This will promote mobility and encourage citizens to use public transport over private.

The law on measures to improve the purchasing power of citizens consists of 4 articles and 5 final provisions, it will enter into force the day after its publication in the Official Gazette of Andorra (BOPA).