The VAT reduction on food, a limited and insufficient measure for consumers

2023-06-10 10:32:28

The Government plans to extend the VAT reduction on food if the current price level is maintained; This is a measure designed to alleviate the historical increase in the shopping basket, although consumers, the sector and experts agree that its impact has been “limited”. After months of runaway inflation, the Government decided in the middle of Christmas to approve the abolition of VAT on basic foods and reduce that of oils and pasta from 10% to 5%. Vice President Nadia Calviño insisted yesterday in New York that the Executive intends to extend this measure, as requested by the sector, although this decision was conditioned on maintaining current prices, “given the influence of these prices on the pockets of the Spanish families”.

What has happened to prices so far?

Among the foods to which VAT has been lowered, there have been disparate behaviors in their prices so far this year, due to the fact that many factors influence their formation and not only the tax burden. Legumes (+14.6%), rice (+8.2%) and potatoes (+.2%) are the ones that have become more expensive, according to the CPI data for April; at the other extreme, the fall of 3.4% in the case of fruit and 1.9% for pasta.

What is the cost of the measure?

Although some projections spoke of 700 million, the first official data have left at 254 the millions that the State coffers have stopped entering due to this tax cut until April. In per capita terms, it amounts to just over five euros and is just over 40 euros per household.

The sector wants its extension

In recent months, joint demonstrations around shared objectives of the entire food chain (producers, cooperatives, industry and distribution) have been more common than usual, despite often having conflicting interests. A little over a year ago they launched an SOS in response to the transport strike, they also tried unsuccessfully to stop the plastic tax and this week they have demonstrated in favor of maintaining the VAT cut until September. They argue that the market is still stressed and, in any case, they insist on extending the cuts to meat and fish, which account for 38% of food spending to improve the limited impact of this drop.

An insufficient measure for households

Consumer organizations insist that this measure fell short from its origin. Thus, the spokesman for the Organization of Consumers and Users (OCU), Enrique García, points out to Efe the limited scope by not incorporating the drop in fish or meat, which are the items that take the most part of the budget. In a context in which extremely vulnerable families have gone from 8 to 11% in one year as a result of inflation, the OCU considers that it is still early to withdraw this measure. Much more forceful are shown from Facua; its president, Rubén Sánchez, regrets that this measure has only been intended to “make up” the large price increases. He also denounces the lack of control by the authorities; his solution involves intervention in the prices of basic foods.

Consumption and demand do not rise

The different consultancies that analyze in detail how and what the Spanish buy to fill their fridge agree that high prices and the state of opinion have given rise to a very attentive consumer at this price. The IRI expert, Antonio Khalaf, points out that in these six months other factors have coincided to boost prices and even other tax increases such as plastic that have meant that this measure has not achieved all the desired effect. He points out that, for now and according to his company’s data, the demand is “stagnant” and the client has “get used to” the price increases. For his part, the Kantar expert Bernardo Rodilla agrees that many aspects have influenced this semester, such as the state of opinion; “If you’re talking about shopping all day, in the end that affects when you go shopping.” He acknowledges, however, that he was entering a context in which even some operators were announcing price cuts and with some relaxation in the general indices and the consumer.