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

Recent VAT Changes: who gained? who lost?

TASC Lunchtime Seminar, Dublin October 1st 2014

Dr Micheรกl Collins NERI (Nevin Economic Research Institute) Dublin mcollins@NERInstitute.net @ MLGCollins www.NERInstitute.net

Outline 1.

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Introduction Indirect Taxation Model Representativeness of the Model Income Categories Recent change no. 1 Recent change no. 2 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 o o o o

EC report (2013) 2001-2011: 49% of VAT from households 2009 = 51% 2010 = 53% 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

Atkinson and Brandoliniâ&#x20AC;&#x2122;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

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?

TASC Lunchtime Seminar, Dublin October 1st 2014

Dr Micheรกl Collins NERI (Nevin Economic Research Institute) Dublin mcollins@NERInstitute.net @ MLGCollins www.NERInstitute.net