The supervisor calculates that a payment of 860 euros to the lowest incomes would cost half of the VAT reduction for light and food and fuel aid
The Bank of Spain calculates that the Government will 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 2021 and 2025 and, 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 revealed 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 focus’, in the one that defends that alternative measures, focused on vulnerable households based on their income, would achieve similar levels of protection but with a lower budgetary cost and avoiding “distortions” in prices.
Specifically, it calculates that a transfer 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, practically half of the 9,581 million euros that the reduction of 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 will obtain with the VAT reduction and the fuel bonus, for which reason the Bank of Spain concludes that it would be possible to maintain the protection of almost all vulnerable households with half the budget cost.
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 benefit equally from the three eliminated measures. 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.
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