It is costly, inefficient and has a modest effect on inflationary ‘shock’. VAT reduction on various basic foods and basic needs has not yet been possible. general price increase (this continues to grow rapidly, above all in the food field), but loss of government revenue This particularly affected high-income households. Specifically, according to a study published this Thursday main center for economic policyHalf of the money that could not be collected due to the reduction of this tax went to the highest 40% of households’ economic capacity.
According to the National Institute of Statistics, this report breaks down families according to their spending (INE), a range of food products (oil, fruit, eggs, milk, legumes, bread, pasta, cheeses, tubers And vegetables) and concludes that households with the highest incomes would save 85 euros if this measure were in effect for one year. The thing is, the figure drops to 35 euros for homes with a small spending margin. That is, according to the analysis prepared by economists Miguel Almunia, javier martinez And angel Martinez, If this were a direct investment, more money would go to higher income families.
“If you are a public decision maker facing an inflation problem that affects low-income people above all else, the fiscal path gives you two options: rent transfer anyone lower taxes for everyone” contextualizes Esade EcPol Deputy Director, Jorge Galindo. “The latter is much more urgent and reaches everyone faster, the downside is, public expenditure in the people who need it most,” says the same expert.
The reflection is simple: if a 5% savings represents 20 euros for a wealthy family and 2 euros for a poor family, the State allocates more money to the former than to the latter (or in this case cannot enter).
modest effect
It is true that these 85 and 35 euros determined by the report represent a value. similar percentage of savings in relation to total expenditure on food: According to data from Esade EcPol research, households at the top of the chart spend around €2,000 per year, while families at the bottom spend €600. Strikingly, since the latter spends 70% less, the savings rate is very similar to that of more relaxed households, 0.3% versus 0.1%.
It should also be noted that “the overall impact of this measure is modest compared to the size of the world. inflationary shock what it’s trying to deal with: food prices have increased by more than 13% since 2021, and this measure represents only a 3.6% reduction in the prices of a food subgroup”, points out the reporters.
real effect
Another consequence is that the prices of products affected by the VAT reduction only really dropped in the first week the measure took effect, and since then they haven’t stopped rising until they’re actually right in the last week of February. before the year ends.
Therefore, this group of economists classify the measure as inefficient and income transferinstead of one random VAT deduction. “A targeted income transfer policy to low-income households would have been more effective in distribution and cheaper in budget,” the study concludes. “If we want to be effective in public spending, we have to make that extra effort,” says Galindo. Minimum Vital Income (IM V) is excellent in this sense, if some details are not polished, and there are other tools, for example negative income taxes or a aid package distributed according to income.