Aging will be the biggest challenge facing the Old Continent in the decades to come, even if it is already a reality. Several economies, including Spain, are already facing the impact of the baby boom generation and are making long-term forecasts. With an older population, the job market or health care will also have an impact. Projections managed by the European Commission place Spain at the highest level in terms of costs associated with aging over the coming decades. The pension bill, which already currently exceeds 13% of GDP, will rise to a ratio of 16.7% of GDP. The cost of care will do the same with an increase of 20%, going from 5.9% currently to 7.1% in half a century.
Thus, Brussels designates Spain as the economy where the bill for the aging of the population will be the highest. A quarter of the country’s annual production will be devoted to what they call “care” and the financial support of the elderly, retirees whose main income will generally be that paid to them by Social Security. Although some countries are seeing a similar or even greater increase in spending on this item, none exceed Spain, which will spend almost 5 additional points of GDP on it by 2070. In current terms, It would be like going from just over $280 billion to an allocation of over $350 billion.
Currently, the pension system – which represents the bulk of the cost of aging – is already partially financed by taxes and not only by social contributions which, in a contributory manner, have supplied the social security fund. Part of the taxes is transferred on the recommendation of the Toledo Pact and for non-contributory expenses, but another part is transferred from the state to guarantee sustainability.
Every billion in spending increases will mean two things (essentially, the same goal) on the public accounts: increase public revenue or restructure the budget. 70 billion more today in the future is equivalent to 60% of the personal income tax collection in 2023. Regardless, the measures that the government is proposing today to guarantee the sustainability are insufficient in the eyes of the main organizations, which note a permanent deficit. in the retirement system for decades to come.
The key to productivity
The so-called “Aging Report” of the European Commission is the three-year document with which Brussels analyzes the impact that demographic developments will have on the viability of the public accounts of European countries, taking into account that Europe will be more affected than the United States or China by demographic decline. All of this implies an economic impact that goes beyond public spending on retirement or care driven by this demographic winter, careers, productivity of the economy or retirement spending.
These reports constitute a very long-term projection exercise aimed at providing a complete picture of what an economy will be like in five decades. without economic reforms involved. With a growth model historically based on quantity, understood as the incorporation of work, rather than on quality, understood as investment or productive growth, in Spain there is particular concern about the progress that the productivity indicator.
The European institution and the consensus of experts point in one direction: with less population, the labor market and the productive capacity of the continent will be put to the test. This is particularly relevant in the Spanish case, because historically this country lags behind Europe in terms of employment and productivity. This indicator, which measures the growth of the economy – GDP – among its workers and which will be oriented downward, according to these forecasts, whatever the possible transformative effect of technology and the adaptability of our country’s productive model.
In addition, productivity is the key for pensions to cost 1 point more than GDP, or 0.6 less, as the Ministry of the Economy states in the file containing different models that it sent to Brussels. The public spending bill for these two items could reach a quarter of GDP or be reduced to just 23.2% of GDP under this model.
This is not a country for young people
It won’t all come down to increased public spending, otherwise Spain’s finances would be derailed. And in a country where people are increasingly older and where the demographic pyramid is also unbalanced, it is normal that children represent an increasingly small share of income and expenditure projections. THE education will decrease slightly to 3.5% of GDP against 4.1% currently (-0.6 point). The drop will be the same as the average for the rest of European countries.
This does not mean that aging is accompanied by a reduction in the birth of children, since Brussels observes with slight optimism the fertility or birth rate of currently 1.2 to 1.4 children per woman. The European Commission projects this scenario to constant policies, without reductions, simply due to the effect of the lower number of students compared to the rest of the population.
But, in any case, the labor market will not be dominated by young people: by 2040, there will be more workers between 65 and 74 years old than up to 24 years old, the result of a labor force more extensive. This trend already exists today, if we look at the data since the Great Crisis: fewer and fewer young people are employed.
