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Economics in a picture
30.06.2023
The VAT reduction on a basket of food items is less targeted at vulnerable families than the income support measures
In response to the rise in prices, in 2023 several measures have been implemented to support household income, from which the extraordinary transfer to vulnerable households (amounting to €360 per year), the rent subsidy (maximum of €2,400 per year) and the extraordinary complement to the child benefit (€180 per child per year) stand out. At the same time, the VAT rate of a basket of essential food items was reduced, also affecting households’ disposable income.
The measure most targeted at the population with fewer resources is the extraordinary support to vulnerable families, channelling around 71% of its budgetary cost to the first quintile of the income distribution. The budgetary cost of the rent support and the extraordinary complement to the child benefit is further channelled to this group of the population by around 40% and 35% respectively. In comparison, the VAT reduction is a more transversal measure, less focused on the most vulnerable families: it directs 23% of the public resources to households in the top income quintile, 20% more than those resources channelled to the families belonging to the lowest income quintile (19%).
For more details, see the box 3 “The redistributive impact of measures to support households in response to rising prices and pension developments”, published in the Economic Bulletin of Banco de Portugal, June 2023.
Prepared by Sara Riscado and Lara Wemans. The analyses, opinions and findings expressed above represent the views of the author and not necessarily those of Banco de Portugal or the Eurosystem.
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