Costly, inefficient and with a modest impact in relation to the inflationary ‘shock’. The reduction in VAT on various basic foods and basic necessities not only has not yet been able to general price increase (which continues to skyrocket above all in the food field), but has meant a loss of government revenue This has had an impact especially on higher income households. Specifically, according to a study published this Thursday by the esade economic policy centerhalf of the money that was not collected due to the reduction of this tax went to the 40% of households with the greatest economic capacity.
This report divides families by the spending they allocate, according to the Statistics National Institute (INE), to a whole series of food products (oil, fruit, eggs, milk, legumes, bread, pasta, cheeses, tubers and vegetables) and concludes that households with the highest income would save 85 euros if this measure were in force for a whole year. The point is that the figure is going down to 35 euros in homes with less spending margin. In other words, according to the analysis prepared by economists Miguel Almunia, javier martinez and Angel Martinez, If this were a direct investment, more money would be going to higher-income families.
“When you are a public decision-maker facing an inflation problem that is affecting low-income people above all, the fiscal route allows you two options: make a rent transfer either lower taxes for everyone& rdquor ;, contextualizes the Deputy Director of Esade EcPol, Jorge Galindo. “The second is much more immediate and reaches everyone faster, the disadvantage is that it does not allow you to focus the public spending in the people who need it most & rdquor ;, raises the same expert.
The reflection is simple: if a 5% saving represents 20 euros for a rich family and 2 euros for a poor family, the State is allocating (or, in this case, failing to enter) more money to the first than to the second .
modest impact
It is true that these 85 and 35 euros that the report identifies represent a similar savings percentage in relation to total expenditure on food: according to data from the Esade EcPol study, households at the top of the graph allocate around 2,000 euros a year to purchases, compared to 600 euros for families at the bottom. What is striking is that since the latter spend 70% less, the savings rate is so similar to that of those households that are more comfortable, 0.3% compared to 0.1%.
In addition, “it must be taken into account that the total impact of this measure is modest compared to the size of the inflationary shock which it is trying to deal with: food prices have risen by more than 13% since 2021, and this measure only represents a 3.6% reduction in the prices of a subgroup of foods& rdquor ;, point out those responsible for the report.
actual effect
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Another conclusion is that the products affected by the VAT reduction only really fell in price the first week that the measure was in force, and they have not stopped rising since then until they were, in the last week of February, practically where they were right before the year was out.
Hence, this group of economists classifies the measure as inefficient and opts for a income transferrather than for a indiscriminate reduction of VAT. “A targeted income transfer policy to low-income households would have been more effective from a distributive point of view, and cheaper from a budgetary point of view,” concludes the study. “If we want to be effective with public spending, we have to make that extra effort,” suggests Galindo, who takes the opportunity to remember that the Minimum Vital Income (IM V) is, in the absence of polishing some details, perfect in this sense, and that there are other tools, such as negative income taxes or a aid package distributed according to income.