The Independent Accountability Authority has launched an interactive tool on its website to help users gauge how VAT reductions could affect different population groups by income level. The tool shows which goods and services that contribute to a family’s budget — such as food, clothing, housing, furniture, health, education, entertainment, and dining out — would benefit most from a potential VAT cut. It also helps identify groups that could be targeted for greater budget relief, guiding policymakers and the public on where the impact of an income-based relief might be most pronounced.
Used in discussions about which families would gain more from a VAT discount on meat and fish, the tool is aligned with proposals supported by various political groups and industry associations, including those linked to the AECOC organization. It also reveals which income group would bear the larger share of the budgetary cost should the government proceed with such a VAT cut, offering a clearer picture of who benefits and by how much. Overall, the analysis suggests that a VAT reduction on food tends to shift more relief toward higher-income households, a finding echoed by a recent Esade study (Esade study).
Specifically, analyses processed by Airef indicate that reducing VAT by one percentage point on meat products would produce only a tiny spending reduction for the bottom 10 percent of households and a similarly modest impact for the top 10 percent. Yet the middle group would account for a larger share of the budget impact if the VAT cut were applied. The tool shows that roughly 11.5 percent of the overall budgetary cost would fall on the middle 10 percent, while about 7.9 percent would go to the bottom 10 percent (Airef data cited in Airef analyses).
A different example notes a 36 percent collection loss to the tax authority if a one-point VAT cut on fish is adopted, with 30 percent of the relief flowing to the highest-income Hispanic families. In contrast, about 30 percent of households with the lowest purchasing power would receive 24.1 percent of the benefit, representing a gap of nearly 12 percentage points relative to the higher-income groups. This pattern aligns with the general trend observed: lower-income families tend to receive greater relief on essential goods, such as food, because foods represent a larger portion of their expenditures. However, overall the budget cost of reducing VAT tends to be borne more by higher-income individuals since essential goods consume less of their budgets on a proportional basis, while higher-income households often purchase larger quantities.
From January 1, the government approved a VAT reduction on a broad basket of foods, including oils, fruits, eggs, milk, legumes, bread, pasta, cheese, tubers, and vegetables. The aim is to ease inflation and offer relief to vulnerable families. Esade’s estimates indicate that households with higher discretionary spending could save about 85 euros per year, while less comfortable families might save around 35 euros per year under this measure.
When VAT is reduced by one point across the entire food basket, Airef’s interactive tool estimates a 0.52 percent relief in the family budget for the bottom 10 percent of earners. In contrast, savings for the top 10 percent are expected to be much smaller, around 0.09 percent. The distribution of the budgetary cost remains skewed toward higher-income groups, with the top 10 percent benefiting roughly 11.8 percent of the total cost, while the bottom 10 percent receive about 7.9 percent of the impact, a gap of nearly four percentage points in favor of higher-income households. These patterns are consistent across many food categories, including bread, sugar, potatoes, oils, milk, coffee, and other staples, where the budgetary advantage tends to favor higher-income groups, though there are pockets of parity in some items like certain dairy products and plant-based alternatives. (Airef analysis)
In several cases, the highest-income 30 percent consistently derives the most benefit from a one-point VAT reduction, with notable exceptions such as bread or sugar where lower-income households can capture a relatively larger share. For products like potatoes, oils, milk, and coffee, effects appear more evenly distributed across income groups. It is also observed that even among beverages and breakfast items, the distribution can vary, underscoring the complexity of how consumption patterns influence relief. The overall implication remains clear: a VAT cut tends to favor higher-income families when the scope includes a broad food basket.
The analysis also highlights that the impact on diet-related items could shift if the government narrows the VAT reduction to specific categories. In some cases, the richest 30 percent may gain more for items like coffee capsules and prepared meals, while other staples show a more balanced distribution. Overall, the tool and accompanying analyses emphasize the need to consider how tax policy design intersects with household spending patterns, equity goals, and inflation relief strategies. (Airef and Esade findings)