In the last two years, families paid 297 euros more in VAT than the previous year just because of the impact of inflation. The extra cost that families have borne shows that government measures such as the reduction of VAT on electricity were not enough to compensate for the fiscal damage of runaway prices. The calculations are from Funcas and appear in the latest issue of Cuadernos de Información Económica, a publication edited by the institution.
The increase in prices of products or services automatically implies an increase in the tax bill. Obviously, the impact is greater in households with more spending (685) compared to those with less consumption (89 euros).
The report also provides data on the increase in the bill by year. In 2022, Funcas calculates that the VAT borne by households grew by an average of 263.6 euros, of which more than half, 52.4%, is directly attributable to inflation. The rest is due to the increase in consumption or the change in the configuration of the consumption basket, explains Desiderio Romero, Funcas researcher and author of the report.
In a previous work, Romero calculated that the VAT reductions approved by the Government entailed a saving for families of around 50 euros each semester. Therefore, they offset only a small part of the fiscal damage from the price hike. The beneficiary of the situation was the State through the public treasury, since it registered record collections for VAT, with a growth of 14.9% in 2021 and 13.4% in 2022.
The strong increase took place after during the hardest year of the pandemic (2020) there was “a sudden change in household consumption patterns due to confinement, so that the weight of the taxed bases increased extraordinarily at a super-reduced rate”, such as the one levied on foods such as bread, milk, eggs, fresh fruit and vegetables.
The Funcas researcher warns that the data are calculated on the basis of the INE survey on current expenses, so that the effect of inflation on the VAT of products whose purchase is not taken into account is more exceptional, such as automobiles or other goods.
By autonomous communities, the study also analyzes the aforementioned average tax burden of VAT: in Catalonia it was 280.6 euros, despite the fact that the biggest increase corresponds to Navarre, with 341.8 euros. On the other side are the Canary Islands, which is the community with the least accumulated revenue (240.7 euros). The study also reflects that the VAT caused by inflation is greater in households that are in smaller municipalities.
In the publication, Funcas also reviews the effects of the normalization of monetary policy, which fundamentally seeks to control runaway inflation, which is what generates an artificial increase in the VAT tax bill of families. One of the most obvious consequences is that funding for housing was reduced by 2.5%. In contrast, banking entities increased pre-tax profit on their average assets from 0.8% to 1%. Other beneficiaries were investors in three-year Treasury bonds, who went from receiving a negative return of 0.4% in 2021 to 3.3% in July 2023.
The situation of high inflation and high interest rates takes place at a time when inequalities remain high in terms of the distribution of real estate wealth. Yesterday the Bank of Spain reported that half of the poorest households had 15.7% of real estate wealth in 2022, while 10% of households with the highest income accumulated 36.7% of real estate wealth mentioned
In the last two years, 20% of the poorest households increased their share of housing wealth (0.6 percentage points). On the other hand, 10% of households with the highest income reduced their share of total housing wealth between 2020 and 2022 (0.5 percentage points less).
