The regulator calculates that a payment of 860 euros to the lowest incomes will cost half of the VAT reduction for light and food and fuel aid
The Bank of Spain calculates that between 2021 and 2025 the government will allocate between 34,000 and 40,000 million euros for measures to deal with the energy and inflation crises caused by the war in Ukraine, and of this total only between 15 % and 20% targeting the most vulnerable income groups, of which between 80% and 85% are of a general nature. The largest impact would be concentrated in 2022 (assuming 1.3%-1.4% of GDP) and in 2023 (assuming 0.8%-1% of GDP).
This is evident from his latest analytical article entitled ‘Support measures against the energy crisis and the rise in inflation: an analysis of the costs and the distributional effects of some of the actions deployed according to their degree of focus’, in the article that defends that alternative measures, targeting vulnerable households based on their income would achieve a similar level of protection, but with lower budgetary costs and avoid “price distortions”.
In concrete terms, it calculates that a payment to vulnerable households (those whose income is less than 60% of the median income) of up to 860 euros would cost around 4,790 million euros, about half of the 9,581 million euros that the reduction in 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 will get with the VAT reduction and the fuel bonus, for which reason the Bank of Spain concludes that it would be possible to protect almost all vulnerable households households with half the budget costs.
Together with this proposal, the organization led by Pablo Hernández de Cos is carrying out another simulation, in this case through an aid of 375 euros to each vulnerable household, this amount being equal to the average benefit that the lowest incomes receive as a result of the three general measures that would be scrapped (reduction of VAT on electricity, food and fuel rebates).
The total budgetary cost of these transfers would amount to EUR 2,095 million and would represent a budgetary saving of EUR 7,484 million compared to the total budgetary cost of the three previous measures.
However, in this hypothetical exercise, not all vulnerable households would be affected equally, as not all households benefit equally from the three deleted measures. For example, about 37% of these households would lose an average of 229 euros, while the remaining vulnerable households would gain an average of 154 euros.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
