Families will save between 23 and 62 euros in six months with the VAT reduction on food

The VAT reduction on basic foods that came into force on January 1 will mean an average saving for families of 43 euros in six months, it will benefit the highest incomes more in absolute terms and the low incomes in relative terms, and will have a cost of 803 million euros, above government estimates, which put it at 661 million.

Thomas Osborne
Thomas Osborne
31 January 2023 Tuesday 02:47
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Families will save between 23 and 62 euros in six months with the VAT reduction on food

The VAT reduction on basic foods that came into force on January 1 will mean an average saving for families of 43 euros in six months, it will benefit the highest incomes more in absolute terms and the low incomes in relative terms, and will have a cost of 803 million euros, above government estimates, which put it at 661 million. These are the main conclusions of a study carried out by Desiderio Romero, professor of applied economics at the Rey Juan Carlos University (URJC) published today by Funcas, the study center of the savings banks foundation.

The average tax savings of families when going to make the purchase ranges from 22.6 euros for the most modest incomes, corresponding to the 20% of households with the least economic capacity, to 62.2 euros for the most modest bracket. high, a fifth of them with greater income possibilities. This conclusion is logical, since it is these families who, taking as a reference the family budget survey (EPF) of the National Institute of Statistics (INE) spent more money last year to buy the food included in the tax reduction. In this way, high-income households paid around 270 euros per month for said goods, while those with lower incomes spent 100 euros per month.

However, it is the most modest households that benefit the most in relative terms from the reduction in VAT on basic food. This, according to Romero's analysis, is explained by the fact that the weight of the wealthiest families' shopping basket is decreasing not only with respect to total household spending (permanent income) but also with respect to spending on food and non-alcoholic beverages .

In other words: the most modest families invest a greater part of their total spending on food affected by the tax cut. Thus, the 40% of households located in the lowest brackets accumulate 18.6% of their spending on these goods, above the weight of the wealthiest 40%, who spend 13.5% of their income on discounted foods.

According to the structure of the households, those least favored by the measure that will be in force, in principle, until June 30 are those who live alone and are over 65 years of age, those under 30 and single-parent or single-parent families. On the opposite side, among the most favored are couples with two children, couples without children with one of their members over 65 years of age, and then families with a dependent child.

Romero's conclusion is that "the temporary VAT reform will have a positive effect, albeit of a small magnitude, on household income."

Regarding the total cost of the measure, the professor raises it to 803 million in the six months of validity provided for in the decree validated in Congress last week. “This calculation is made by raising the average savings per referred household to the population; For this, we use the number of households existing in 2022, which, according to the INE, is 18.9 million, ”he explains. Other authors, such as a recent study by Julio López-Laborda, Carmen Marín González and Jorge Onrubia, estimated the total cost at 700 million.

With that average number of homes, the tax savings per family would be between 35 and 42.5 euros.

Most of the food prices benefited from the VAT reduction have grown in 2022 above two digits, with the average being 21.1%. This set of foods represents, on average, 39% of the annual expenditure made by households on food and non-alcoholic beverages. Of that figure, 93.7% corresponds to goods reduced to 0% and the remaining 6.3% affects pasta and vegetable oils.