2023-11-05 11:25:10
If the investiture of Pedro Sanchez As president comes forward, one of the first decisions that the newly formed Government will have to make will be what to do with the anti-inflation measures, which expire on December 31. These are measures that the Government has been adopting since June 2021 (almost 50,000 million euros since then) to combat the rising cost of the energy -exacerbated by the war in Ukraine- and of the foods and to alleviate its consequences on Spanish families, in the same way that the rest of the countries in the euro zone have done. While in the acting Government, the third vice president, Teresa Ribera, is in favor of extending the VAT reduction on electricity and gas and other shock measures to 2024 (with an impact of up to 15,000 million, according to calculations by the Tax Authority), organizations such as the European Commission or the IMF urge Spain to put an end to all of them and, if anything, only maintain well-targeted aid in favor of most vulnerable groups.
In this context, a recent study published by the European Central Bank points out that, in general, in the euro zone anti-inflation measures have served to compensate (by a third) for the loss of purchasing power of homes and to reduce the inequality between lower and higher income families; but the latter was not like that even in Spain nor in Germany.
Lower prices or provide aid
The main reason that explains this is that Spain, Unlike other countries, it has opted more than others for generalized indirect tax cuts to lower energy and food prices instead of prioritizing subsidies or direct aid to lower-income families, as, for example, has been done Portugal. So it point out the authors of the ‘occasional paper’ published by the ECB on October 16 under the title ‘Inflation, fiscal policy and inequality’.
The calls ‘price measures’ They have taken up more than 80% of the Spanish budgetary effort, compared to the 50% average in the euro zone. This includes generalized measures such as the reduction of VAT on electricity and gas, the discount of 20 cents per liter of fuel which was in force in 2022 or some subsidies to certain sectors.
However the calls ‘income measures’, with greater redistributive potential, they have barely represented 20% of the total budgetary effort in Spain (compared to the 50% average in the euro zone). This includes certain discounts on the IRPF, the help of 200 euros to homes or the 15% increase in non-contributory pensions and of minimum vital income.
“Las price measures Untargeted measures slow price increases for all consumers and incur high fiscal costs compared to income measures. Furthermore, it is not entirely clear if they achieve their initial objective of containing prices, since most depend on companies deciding to pass the reduction on to consumers,” the authors of the ‘paper’ reason.
Comparative study
The poor focus of the anti-inflation measures adopted in Spain is an issue to which both the Bank of Spain and the Fiscal Authority (Airef) had drawn attention. The novelty is that the ‘paper’ published by the ECB allows comparison with other countries.
“Governments’ responses to rising inflation have varied widely across countries. While some have focused on contain price increases (For example, Greece), others took further steps to support households through transfer payments (for example, Portugal). In particular, the adverse effect of the inflationary shock on inequality was largely offset in all countries, with the exception of Germany and Spain“conclude the authors of the European study.
The report studies the dampening effect of anti-inflation measures in different economies in the euro zone. The analysis focuses on Germany, France, Italy, Spain, Portugal and Greece -representative of 80% of the population of the euro zone and three quarters of its GDP- and observes a total of 56 measures anti-inflation applied in 2022 for all of them.
In 2022, inflation in the euro zone went from 2.6% in 2021 to 8.4% and, overall, measures were adopted against the energy price shock due to equivalent to 2% of GDP of EMU which, according to the ECB study, served to prevent inflation from being 1.6 points higher. (For the Spanish case, the Bank of Spain estimates that anti-inflation measures represented around 1.3% of GDP in 2022 and served to subtract 2.3 points from an average inflation that ended at 8.4%).
Inequality
To begin with, the thirteen authors of the ECB ‘paper’ confirm that the inflation energy and food of 2022 more seriously affected to purchasing power and the well-being of lower income households. This was due to two factors: because these families spend practically all of their income (they can barely save) and because energy and food weigh more in their shopping basket than in that of households with higher incomes. For example, in the Spanish case, the Bank of Spain estimated that supported inflation between August 2021 and September 2022 it was 11.3% for the shopping basket of households with the lowest income level, compared to 9.7% in which it became more expensive for families with higher incomes.
The report published by the ECB estimates that, in general, anti-inflation measures compensated for a third of the loss of purchasing power of households in the euro zone and which, in addition, served to close around 60% of the inequality gap between the lowest and highest income households. However, this was not the case neither in Spain nor in Germanywhere the measures adopted by their respective governments did serve to contain inflation but failed to do so more intensely for households with lower income levels.
In the case of Germany, It is emphasized that inflation was largely offset by the nominal wage growth, which especially favored households with higher income levels. “In Germany and Spain, low-income households lost a greater proportion of their disposable income,” it points out.
#ECB #detects #antiinflation #measures #reduced #inequalities #Spain #Germany