We Are all Facing the Same Storm, but not all Are in the Same Boat

a discussion note by Bart Capéau, André Decoster, Nabil Sheikh Hassan, Jonas Vanderkelen, Toon Vanheukelom, Stijn Van Houtven (UK-FR-NL)

Belgian households are hit hard by the ongoing energy price hike. However, not all households are facing the same consequences. With a micro-simulation exercise we evaluate the differential purchasing power effect of the increase of prices of electricity and gas between January 2021 and January 2022 across the income distribution. We also give attention to the distributional impact of existing compensation mechanisms (income indexation and the social tariff) and the additional compensation measures decided on February 1^st (prolongation of the broadening of the eligibility criteria for the social tariff, VAT reduction on electricity, and a heating cheque). We find that the net effect of VAT reduction is small compared to that of the extension of the social tariff and wage indexation. On average households in the middle class are not fully compensated for the price hike by the compensating policy measures. But these averages conceal wide variations. Even in the lowest decile 2,5% of the households face purchasing power losses. In the third decile 10% of the households face a loss at least 10% of their income.

We are all facing the same storm, but not all are in the same boat.
Nous faisons face à la même tempête, mais pas avec le même bateau.
We zitten allemaal in dezelfde storm, maar niet in hetzelfde schuitje.