The sharp increase in social security contributions, imposed by the pension reform recently approved by the government, has only just begun. At least that is what the Foundation for Applied Economic Sciences (Fedea) warns in its latest report published this Wednesday on the effects that this rule, designed by Minister José Luis Escrivá, will eventually have on the system. His estimates differ significantly from Escrivá’s and according to his calculations, the measures he is implementing, including the revaluation of pensions with the CPI, will increase spending by an average of 4.4 points of GDP over the period 2020-2050 – and will reach as much as 6.3 points of additional spending at the end of the period – until it reaches 17.8% of GDP in 2050, almost three points above the 15% maximum that has been set as a barrier. With this strong recovery, Spain would be at the top of Europe in terms of pension spending, surpassing the EU average by 5.2 points and ahead of Italy by 1.6 points. This additional spending on pensions will lead to an increase in social contributions of 3 to 4 percentage points in five years due to the activation of the Intergenerational Equity Mechanism (MEI) safeguard clause, which should come into effect just two years later of the adoption of a reform “supposedly designed to ensure the sustainability of the system”, warns Fedea. But even with this adjustment, it will not be enough, as it would leave the public pension system with a base deficit that, without corrective action, would average 4.4 points of GDP over the period 2022-2050 and rise to 6.3 points . “absorbing 52% of the state’s net tax revenue” at the end of the period, according to Fedea. “These results call into question the logic of a reform that would require major corrections from the moment of adoption,” the report concludes.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
