The Spanish government has committed to the European Commission to carry out a budgetary adjustment of public accounts in a medium-term perspective. The Economy Ministry is leading this plan, which it developed for higher tax revenues to avoid cuts. The debt reduction path includes a decrease of 14.4 points in the ratio of public debt to GDP, which will go from 105% of GDP with which it closed last year to 90.6% in 2031, when it ends the period of the tax plan. La Moncloa, however, excluded pensions from any medium-term budgetary effort in the document provided to Brussels. This shielding will mean that with such a reduction in liabilities, Pensions will remain intact and will not even contribute to a tenth of savings in the coming years.
The government is taking up the challenge of the forecasts included in the recent report on aging, which includes the European Commission’s projection and its own fact sheet prepared by the portfolio of Minister Carlos Body. The economy appreciates the latest pension reform and its measures which will increase incomes and contribute to “fiscal sustainability”. “This is why pension reform plays a key role in the reform and investment component for the extension of the effort which accompanies this Fiscal and Structural Plan,” indicates the report. Spain subtracts from the cost of aging the higher incomes generated after the reform.
The philosophy of the Executive “protects” pensions, entrusting the sustainability of the system to the greatest efforts that must be made by the active social contributor population on the basis of the fact that current revenues are no longer sufficient to cover all expenses and that the Administration’s liabilities exceed 100 billion.
The government’s objective is reduce the level of debt relative to GDP by 28.2 points in the long term, in 2041. Although deviations may occur given the range with which the forecasts are prepared, at the moment the Executive provides that The cost of this item will only contribute to a debt reduction of 1.8 points on GDP as the Social Security bill approaches its all-time high.
They assure that the latest reform guarantees the sustainability of the system by providing additional income. They include in particular an increase in the system’s resources in social contributions to the tune of 0.7% of GDP by 2031 – the equivalent of 10.5 billion current euros – which the Government does not include in the spending rule. than at the end of the budget plan and which explains a slight increase in net spending between now and then.
In the long term, tax measures would generate revenues greater than 1% of GDP. All this results from the creation of an excess contribution for employees, the new contribution system for the real income of the self-employed, the increase in the maximum contribution bases and the new solidarity quota for high salaries.
Both, They avoid any mention of the reduction in Social Security paymentsl which accompanies the effort that the rest of the Administrations must make. They directly refer to the so-called Intergenerational Equity Mechanism (MEI), the escape clause with which the former minister of the sector, José Luis Escriva, accepted Brussels. This surcharge is paid by employees without distinction and will go to the pension piggy bank which will then be “broken” to cover part of the expenses derived from the “baby boom” generation.
Citing the budget plan itself, this overestimation “prevents future retirees from seeing their pensions drastically reduced to compensate for the impact of aging”because they also believe that the EU must approve their support. Even if they appear to close the door to a reduction in disbursements, the Toledo Pact and social agents will be able to evaluate measures of income, expenses or a combination of the two if the disbursement of social security deviates more than expected, an exercise that they I will do every three years.
The Aging Report explained in April that social security spending would exceed 17% of GDP by mid-century, 6.5 points higher than expected in 2021 and about four points higher than in 2023, when the State had allocated 13% of its GDP to contributory and non-contributory aid. -contributory pensions. Measures such as eliminating the sustainability factor and fully indexing pensions to the CPI make spending more expensive by mid-century and will give Spain the biggest spending increase of any country Europeans.
The mismatch between social contribution revenue and spending will result in a maximum deficit of 3.1% of GDP in the 2050s, when the government limits the negative budget balance to 1.5%. The deficit, in line with expenses, was also imbued with greater pessimism on the part of the institution – already pessimistic in these reports, according to the experts consulted – which testifies to the insufficiency of long-term revenue forecasts. term.
Whether the reform is insufficient on paper or not will be decided next year. The Bank of Spain said last year (without Escriva as supervisor) that additional measures would be necessary. The auditor herself calculated that the adjustment that the government would have to provide would be 0.8% of GDP, or around 12 billion.
The Aging Report provides a reference framework for situating the balance of pension expenditure and income over the coming decades. This report constitutes the first Brussels analysis of pension reform and its measures. Note that the new revaluation rule linked to the CPI and the removal of the Sustainability Factor, which has never been applied, will increase public pension expenditure (+4.3 points of GDP in 2050), even if the new The effective age and legal retirement age incentive mechanism will partly offset this increase in spending (-1.7 points of GDP in 2050), according to the Commission.
