The Bank of Spain has calculated that the Government intends to allocate between 34,000 and 40,000 million euros in measures to deal with the energy and inflation crises derived from the war in Ukraine between the years 2021 and 2025. However, of this total, only between 15% and 20% have been directed at the most vulnerable income groups, with which between 80% and 85% are of a general nature. The greatest impact would be concentrated in 2022 (assuming 1.3%-1.4% of GDP) and in 2023 (assuming 0.8%-1% of GDP).
This is stated in his latest analytical article entitled
‘Support measures against the energy crisis and the rise in inflation: an analysis of the cost and distributional effects of some of the actions deployed according to their degree of targeting’, in which he defends that alternative measures, focused on households Vulnerable based on their income, they would achieve similar levels of protection but with a lower budgetary cost and avoiding “distortions” in prices, according to Europa Press.
Specifically, calculate that a transfer to vulnerable households (those whose income is less than 60% of the median income) of up to 860 euros will cost around 4,790 million, practically half of the 9,581 million euros that the reduction in the VAT on electricity and food and the discount on fuel.
Only less than 4% of vulnerable households would be harmed by this measure compared to what they would obtain with the VAT reduction and the fuel bonus, for which reason the Bank of Spain would conclude that it would be possible to maintain the protection of almost all vulnerable households with half the budget cost.
Aid of 375 euros to a third of vulnerable
Along with this proposal, the organization directed by Pablo Hernández de Cos carries out another simulation, in this case, by means of an aid of 375 euros to each vulnerable household, this amount being equal to the average benefit received by the lowest incomes as a result of the three generalized measures that would be eliminated (reduction of VAT on electricity, food and fuel discounts).
The total budgetary cost of these transfers would be 2,095 million euros and would mean a budgetary saving of 7,484 million euros compared to the total budgetary cost of the three previous measures. However, in this hypothetical exercise, not all vulnerable households would be affected in the same way, since not all would benefit equally from the three measures removed. Thus, around 37% of these households would experience an average loss of 229 euros, while the remaining vulnerable households would experience an average gain of 154 euros.
The Bank of Spain carries out these two simulations after verifying that the VAT reductions on food, as well as electricity and gas, represent greater savings as a percentage of their total expenditure for low-income households, although not in terms of absolute, which benefits the highest incomes more. As for the discount on fuel, high-income households will have benefited to a greater extent, both in relative and absolute terms.
And this is so, among other things, because the inflation experienced by the 30% of households with the lowest income would have been approximately 11.3%, compared to 9.7% in the case of the 30% of households with the highest income, since that lower-income households dedicate a greater proportion of their total spending to the consumption of electricity and also basic food.
On the contrary, natural gas is consumed in a way that is more proportional to each household’s income, while the proportion spent on fuel, unlike the aforementioned goods, is higher in higher-income households.
More savings for higher incomes
In view of these data, the total budgetary impact on households as a whole of the VAT reduction on electricity and gas is estimated at 5,871 million euros, of which 30% of households with the highest income would have benefited a tax saving of 2,055 million euros, compared to 1,484 million for those with lower income, a 39% difference due to the fact that higher-income households spend more on these goods in absolute terms.
However, the Bank of Spain specifies that the relative benefit of low-income households, defined as tax savings with respect to their total spending, would have been higher in low-income households.
Regarding the VAT reduction on food, the study calculates an estimated budgetary impact of 645 million, which also has a greater impact on higher-income households (240 million), compared to low-income households (142 million). This difference, of 70%, is more pronounced than in the case of the VAT reduction for gas and electricity.
About fuel aid
Finally, the budgetary cost of the fuel price bonus would amount to 3,065 million, in this case especially concentrated in high-income households, accumulating a bonus of 1,377b million euros, compared to 472 million for 192% further
Unlike the two previous measures, the Bank of Spain highlights that the relative impact was also greater in higher-income households, consistent with the consumption patterns discussed above, in which lower-income households spend a smaller proportion of their total expenditure on fuel consumption.
