Monday, August 15

Inflation reduces the purchasing power of the poorest households by 30% more than in the richest

Inflation hits the weakest the hardest. This is demonstrated by Intermón Oxfam in its latest report Inequality does not go on vacation in which it details that the increase in prices affects 30% more households with less income than the richest households. Other consequences of the price increase is that so far this year (until May 2022), the shopping basket has become 8.1% more expensive and that households with fewer resources are spending more than a third of their income to pay the energy bill.

High inflation is not only due to electricity and gasoline: Spain’s core CPI registers the largest gap compared to the EU

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Maintaining the same shopping basket, the saving capacity of households with less income has worsened 3.5 times more than that of households with more income. The ‘middle class’ households will also see their saving capacity diminished. Before the rise in the CPI, almost half of Spanish households could save, but after the rise in prices, only 3 out of 10 will be able to do so, according to the organization.

June inflation reached 10.2%, the highest level in 37 years. The Living Conditions Survey indicated that the population at risk of poverty or social exclusion increased to 27.8% during the first year of the pandemic (2020) – the highest figure in five years -, they affect Intermón. In this context, it is not surprising that in households with less purchasing power, today it is 14% more expensive to maintain the same pattern of consumption as before the pandemic. While for the wealthiest households, the price of the shopping basket has also increased, but by 11%.

The NGO recalls that “three crises have put our societies to the test: the Great Recession, the COVID-19 pandemic and the conflict in Ukraine. All three have caused misery and uncertainty, have accentuated existing inequalities and have worn down our social protection systems.”

However, as in previous crises, “Spanish society will be strongly impacted. The governor of the Bank of Spain, Pablo Hernández de Cos, recently said it clearly: ‘We are poorer than before the war’. But this impact is differential: the most vulnerable sectors will be, once again, the most affected without having yet recovered from the effects of previous crises. We are once again witnessing an episode of ‘winners and losers’”.

“These data, unfortunately, confirm that inflation does understand classes, punishing some more than others since life is more expensive for those people who have fewer resources,” says Ernesto García, coordinator of Just Recovery in Spain. Clearly, the increase in prices is especially affecting households with lower income capacity, exacerbating inequality. The different composition of the shopping basket and the sharp rise in the prices of essential goods such as energy are especially detrimental to the households of the most vulnerable groups.

This situation contrasts with the fact that profits in some sectors –financial, pharmaceutical, energy and food– are skyrocketing. The organization points out that the income of the four largest energy companies in our country grew by 34% between 2020 and 2021. Moreover, their profits in 2021 were double the average observed during the previous five years. The hydroelectric and nuclear power plants alone would have generated between March 2021 and March 2022 more than 6,500 million euros of extraordinary profits.

Regarding the increase in the price of energy and its impact on households with less income, Oxfam Intermón estimates that, in the first quarter of 2022 alone, 35% of the income of these households has been allocated to paying for energy. But it also affects many lower-middle class households, where almost 4% of households, that is, 75,019 households, have allocated more than 50% of their income to cover this item.

Intermón Oxfam values ​​the measures that the Executive has adopted, from the ‘Social Shield’ to deal with the social and economic consequences of the pandemic, such as the Response Plan to combat inflation and its expansion, although it qualifies as “non-progressive (the reduction of the VAT on electricity does not differentiate between households with more or less resources) or they are not having the expected effect (the fuel discount is not stopping the escalation of prices)”. The social organization points out that all the measures “serve to avoid the worst, but they are not enough to correct the structural inequalities that exist in our country.”

For this reason, Intermón Oxfam proposes, among other measures, to apply a 90% tax on excess profits of companies, compared to the average of the five previous years. To carry out the calculation, the accounting result of the company for Corporation Tax would be taken as the basis, and not the tax base, which would not faithfully reflect the extraordinary profits, since it is very reduced after the application of all the accounting adjustments.

This model would assume that, even if it is retroactive, the tax could not be collected until the companies’ consolidated returns have been filed at the end of the accounting result (that is, not before the end of March 2023). According to the NGO, it is a less immediate design, which requires more control by the Administration for its calculation, but more adjusted to the principle of taxing only excess profits generated in unusual contexts.

It also proposes as measures the reinforcement of the Minimum Vital Income or the support for self-employed people, SMEs and companies by encouraging the energy transition. In the medium term, it advocates undertaking social protection policies, as well as measures focused on the labor market and support for the productive fabric, care and upbringing; in addition to exploring income policy, as well as guaranteeing protection and support policies for refugees and people on the move, among others. Finally, it asks the Government to design a responsible and supportive tax system so that those who have the most contribute more.