Recent vat changes who gained who lost by micheal collins pdf version

Recent VAT Changes: who gained? who lost?

Dr Micheál Collins

NERI (Nevin Economic Research Institute)

Dublin

mcollins@NERInstitute.net

@ MLGCollins

www.NERInstitute.net

TASC Lunchtime Seminar, Dublin

October 1st 2014

Outline 1. Introduction

2. Indirect Taxation Model

3. Representativeness of the Model

4. Income Categories

5. Recent change no. 1

6. Recent change no. 2

7. Conclusion

1. Introduction • EU wide changes to VAT since 2008 (22/28)

• Ireland changes VAT a lot

• Ireland – Troika programme = 2 changes

(i) Temporary introduction and subsequent retention of

second reduced rate of VAT (13.5% 9%)

(ii) An increase in the standard VAT rate from 21% to 23%

• Collective revenue gains/loss = €1bn per annum

• Looking at the impact of these o NERI working paper (2014/19)

o NERI Research in Brief

2. Indirect Taxation Model • Developed based on 2009/10 Household Budget

Survey microdata

• Allows us to look at VAT, Excise, Levies and other

indirect taxes

• A lot of misery…see Collins and Turnbull (2013) and

Collins (2014a)

• Provides a baseline

• Using equivalised gross household income deciles

and overall averages (state)

3. Representativeness • 2009/10 consumption data – but things have not

changed a lot since then

• 2009/10 income data – decreases, but HBS in line

with where SILC is for 2011 & 2012

• Captures VAT tax take from household well

o EC report (2013)

o 2001-2011: 49% of VAT from households

o 2009 = 51%

o 2010 = 53%

o Modelled VAT = 54-56%

4. Income Categories • Using 2 ways of looking at population:

o Equivalised gross household income deciles

o Atkinson and Brandolini’s (2011) income groups

Median equivalised household disposable income

< 60% median income In poverty

60 to <75% of median Margins of poverty / lower middle class

75 to < 125% of median Middle class

125 to < 167% of median Upper middle class

167% + of median Rich

Atkinson and Brandolini’s (2011) income groups

5. Recent Change No. 1 Reduction of item to second reduced rate of VAT

• 2011 Jobs Initiative

• Focused on tourism sector

• Temporary until end 2013; incorporated into VAT

structure in Budget 2014

• €350m per annum in revenue forgone

• Modelling assumptions

Average household

Exchequer € from households

Overall Exchequer €*

Household yield as % of overall

+€140 -€231m -€350m 66%

Average household

Exchequer € from households

Overall Exchequer €*

Household yield as % of overall

+€140 -€231m -€350m 66%

6. Recent Change No. 2 Increase in the standard VAT rate from 21% to 23%

• Budget 2012

• Troika programme and National Recovery Plan

• €670m per annum in revenue gains to exchequer

• No Dep of Finance assessment of impact

• A guess in the Budget speech by the Minister

• No challenge to assumption of progressive…

• Modelling assumptions

Average household

Exchequer € from households

Overall Exchequer €*

Household yield as % of overall

-€207 +€342m +€670m 51%

Average household

Exchequer € from households

Overall Exchequer €*

Household yield as % of overall

-€207 +€342m +€670m 51%

7. Conclusion • Indirect taxes sweep across all sectors of the

population

• These recent reforms totalling €1bn

• Both progressive and regressive

• Collectively, regressive

• VAT changes occur in Budget context, but useful to

know what their impact has been

Recent VAT Changes: who gained? who lost?

Dr Micheál Collins

NERI (Nevin Economic Research Institute)

Dublin

mcollins@NERInstitute.net

@ MLGCollins

www.NERInstitute.net

TASC Lunchtime Seminar, Dublin

October 1st 2014