The rise in the price of food revives requests to lower VAT, would it be effective?

• Thirteen months of food increases: only in October sugar shoots up 27% and fruit, 10%

After food prices have marked a rise of 15.8% in October, a record since 1986, voices from the sector once again ask the Government to approve a

to relieve the pocket of citizens , the question is whether this measure would be effective.

What VAT is now applied to food?

In Spain there are three types of VAT: general, 21%;

the reduced, 10%, and the super-reduced, 4%.

In a supermarket we can find products taxed with the three types.

-such as eggs, fruits, vegetables, legumes, bread, cheese or milk-

others such as meat, fish, oils, pasta, yogurt, coffee, preserves or bottled water- are taxed at 10%;

while drugstore and perfumery products or sugary and alcoholic beverages have a rate of 21%.

Given that all these products have gone up - yogurts, for example, are 23% more expensive than a year ago;

legumes, 25.7%;

chicken meat, 18.3%, and coffee, 11.9%-, employers in the sector such as

-the Association of Consumer Goods Companies- and some political parties such as the

request a

for these products that they consider "typical of the Mediterranean and Atlantic diet" and that have a rate of 10%.

What VAT do they have in other countries?

Spain

differs from other countries because some of the products that are taxed here with a super-reduced rate of 4% are taxed at higher rates in other European countries.

According to data compiled by the Independent Authority for Fiscal Responsibility (

), Spain is the

on

in the European Union, only behind Italy, Luxembourg, Ireland and Malta.

These last two do not have VAT for food.

All the rest of the countries have higher rates, although in general terms they are below 15%, with the exception of Latvia and Estonia, where the VAT rate for these products is around 20%.

If VAT is lowered, would it mean an automatic drop in prices?

Lowering the VAT on some products from 10% to 4%

of the prices we pay in the supermarket.

This is so because in the end the VAT is calculated on the price of the product -if a liter of olive oil costs 4.50 euros without VAT, the final price in the box will amount to 4.95 euros with a 10% VAT-.

If the Government decides to lower that VAT from 10% to 4%, two things can happen:

in which case the oil in the box will cost 4.68 euros, twenty-seven cents less, or that the sellers take advantage to raise the price slightly and win with the measure.

The consumer will barely notice savings or, in any case, this will be less than the VAT reduction, and

Empirical experiences that have occurred in other countries, such as the temporary VAT reduction that was approved for

between

, show that VAT reductions are not fully transferred to the prices paid by the consumer.

In this case, despite

(from the rate of 22% to 8%),

according to Miguel Almunia, professor of Economics at CUNEF and collaborator of Nothing is Free.

With what there is a risk that the measure is not fully transferred to what the consumer pays.

Do experts recommend this type of measure?

Beyond the risk that the measure is not fully effective, experts and national and international institutions have been

for months against governments approving

They believe that policies should focus on the

Pablo Hernández de Cos

, Governor of the

, recalled this Wednesday the importance of

now the monetary policy of the central banks is being restrictive, while governments continue to approve expansionary fiscal measures- .

A drop in VAT

especially benefiting those who are in the highest income levels because they consume more, and it would also be a measure that would encourage consumption and

which in turn would cause

, at a time when central banks are making an effort precisely to cool down demand and thus lower prices and return inflation to around 2% -in October it stood at 7.3% in Spain-.

"

as this would further increase inflationary pressures (...) The aggregate stance of fiscal policies in the euro area should also normalize. Countries should maintain a

or even

in aggregate terms. This is especially important in the case of

", such as Spain, warned the governor on Wednesday.

What loss of collection would it mean?

By already having super-reduced rates of 4% and reduced rates of 10% in food, the State suffers a reduction in collection compared to what it would enter if these products were taxed with the general rate of 21%.

has estimated that the

State

if it raised these rates to

, even taking into account the drop in consumption that would occur when VAT was raised.

The

is the party that is leading the request for a drop in VAT from 10% to 4% for certain food products and calculates that it would have a

of

per year, as confirmed to this medium.

The hole seems not very large if one takes into account that between January and September

for VAT, which is

than in the same period last year or

only for this tax figure, thanks to inflation.

This information, collected in the latest collection report from the Tax Agency, seems to indicate that the State could have room to approve this measure, as long as it does not need more income to assume more spending.

PP sources point out that this measure should be approved due to the crisis and that, when it passes,

The idea is to "take advantage of the excess collection to return the effort to the citizens," they point out.

According to the criteria of The Trust Project

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