Wednesday 15 August 2012

People at The Guardian clearly know nothing about economics

From The Guardian:

House prices in Spain fell by 11.2% in July, the biggest monthly fall since March last year. Overall prices have fallen by 31% since the financial crisis hit in 2008. Spain has an estimated 2 million unsold homes.

Prices have slumped across the board and even in the big cities they are down 11.8% and 11% on the Mediterranean coast. The biggest falls have been in the Balearics and Canary Islands where prices declined in July by 14%. The government's decision to raise VAT from 4% to 10% on house purchases as of next year is expected to depress the market still further.


Why would VAT on house sales have any effect on prices? Don't they know that in Home-Owner-Ist economics:

1. It is impossible to make landowners bear a tax; they always pass it on as higher prices or higher rents. So if VAT on housing goes up 6%, then prices should go up by 6% and not down. This is why LVT supporters are misguided fools: instead of increasing taxes on landlords they would inadvertently increase the rent bills of tenants.

2. VAT is a harmless tax on 'consumption' on feckless consumers who go round consuming stuff and thereby destroying wealth; the tax is paid in full by the consumer to help atone for his wickedness and does not affect suppliers who merely add it to their prices. Why the heck Greggs plc was complaining about a possible increase in VAT on some of its wares was never established.

3 comments:

neil craig said...

Since its losing app £10 million a year it is hardly a surprise they know nothing of economics. Still, they know what political lies the establishment want told and that the main thing.

Mark Wadsworth said...

NC, I was being ironic.

The G was quite correct. Unless you agree with Homey economics which says there is no difference between the economic impact of a tax and how it's presented in quasi-legal or populist terms.

Mark Wadsworth said...

JH, I refer you to my first comment.

I was being ironic.

Observation of the real world tells us that if VAT on new houses goes from 4% to 10%, then house prices net of VAT will drop by about 6%. That's how the Guardian explained what's happening in Spain.

The same applies to any tax on land or limited resources that require no effort to produce, the tax pushes the price down.

Home-Owner-Ists operate in a different world where adding a tax to houses makes them more expensive to buy.