MADRID – The government continues to spend more money but seems unable to reduce the social divide in Spain. Inequality in the country is increasing as a result of the sharp rise in the price of basic commodities, such as food and energy. More and more families are edging towards poverty.
The starting point for the escalation of prices has already been that the pandemic has increased the percentage of the population at risk of poverty in Spain to 27.8% in 2021, according to the AROPE rate.
The inflation crisis is now threatening to increase this index, despite the fiscal measures and benefits introduced by the government.
Unforeseen expenses and rent and mortgage arrears
Six in ten people in Spain were unable to pay for contingencies last year. A further 28.2% were in arrears in rent or mortgage payments. And nearly three in ten could not afford to keep the house warm.
Increase in people in need of social assistance
“There are strong indications that in 2022 the number of people who can be counted as vulnerable groups will increase,” said Carlos Susías, president of EAPN Europe in El Economista. The European Network for the Fight against Poverty reveals that the rise in the cost of essential products is pushing more people to resort to social resources such as food banks.
Related article: Longer queues at food banks and fewer donations
Vulnerable households must reduce consumption and savings
The European Central Bank wrote in its latest monthly bulletin that the most vulnerable “will have to reduce their real consumption and savings in response to shocks in energy and food prices”. By contrast, middle- and high-income households will have more financial strength to cope with the rising costs of essential products.
Measures needed for low incomes
Since the price explosion, the government has taken a series of measures to absorb inflation in households. Tax credits on electricity and gas were approved. As well as the bonus of 20 cents per litre of fuel since April. “These measures are inefficient because the allocation of resources is not directed to those who need them most, but how to determine the right target of the aid?” asks Pedro Serrano. He is a professor of financial economics and accounting at Carlos III University and points out the difficulty of implementing discriminatory initiatives based on income level.
According to KPMG, the price increase could cost Spanish households up to €3,000 annually in 2022. The report warns that inflation is affecting the most basic things. Consumers stop discretionary spending (durable goods, clothing, entertainment, leisure activities, etc.), dive into their savings or increase their debt to maintain their purchasing behaviour.
“Middle or high-income people postpone major expenses such as travel or buying houses or cars, but low-income people are forced to consume cheaper essential products or even reduce their purchases,” said Juan Ángel Lafuente, professor of Finance and Accounting at Jaume I University.
The government spends €17 billion on measures
According to Fedea’s calculations, the government is spending at least €17 billion on the approved initiatives to mitigate the impact of inflation. However, the organisation confirms that this money does not benefit the groups most affected by inflation. “A lot of this money goes to people who don’t need help,” said director Angel de la Fuente.
The organisation proposes to turn this government expenditure into concrete aid for the most unprotected people. A concrete proposal is a check for €1,900 for families with an income of fewer than €2,000 net per month.
More than half of single parents in poverty
Susías asks to target the measures at certain groups, such as single-parent families. 54.3% of them are at risk of poverty. His analysis is in line with the opinion of international organisations since the outbreak of the crisis. Government fiscal policy should target the most vulnerable households and sectors.
The global economy is already threatening European growth. The European Commission released its economic forecast last Friday. Growth for Spain will be 4.5% in 2022, but the forecast for 2023 has been lowered to 1% of GDP. That would mean that Spain is not yet in the dreaded technical recession.
However, the experts leave the stability in the hands of the labour market, “as long as unemployment does not fall, inflation is a lesser evil.”