Spain’s rich–poor divide fastest growing in Europe

The gap between rich and poor has grown faster in Spain during the crisis than in any other country in Europe, but many austerity measures have helped put the brakes on this process, a new IMF report argues.

Spain's rich–poor divide fastest growing in Europe
The IMF says increases in value-added taxes and cuts to means-tested benefits have hit Spain's poorest 10 percent hard. File photo: Brad Hammonds

The IMF's Fiscal Policy and Income Equality report examines the impact of governments' tax and spending policies on the income gap between rich and poor.

It shows this inequality has increased in most economies in the last 30 years, despite lower overall rates of poverty.

Spain, meanwhile, has seen the largest growth in the wealth divide from 2007 to 2012.

But the study also argues that Spain's crisis-fighting fiscal measures have generally been positive when it comes to narrowing this gap, with wealthier Spaniards bearing the brunt of the costs in the austerity era.

Public sector pay cuts aimed at a largely professional white-collar workforce, and higher rates of personal tax have been positive in redistributing incomes in Spain, the IMF says.

On the other hand, the poorest ten percent of households were harder hit by a five-percent rise to value-added taxes from 2010 to 2012.

Cuts to pensions, and fewer means-tested benefits had also increased inequality in Spain, the IMF said.

In the UK and Italy, by contrast, less money flowed from the richest to the poorest.

In its report, the IMF recommends that advanced economies use more means-testing, with a gradual phasing out of  benefits as incomes rise.

The financial group also want higher retirement ages, with adequate provisions for the poor whose life expectancy could be shorter.
Lower-income groups also need better access to higher education and health services.
More progressive personal tax-rate structures and fewer regressive structures like VAT are also key, the IMF argues. 
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