The government commits within the stability program to a deficit of 5% this year despite the economic slowdown
ElDos are the big problems that await pension reforms for the rest of the year: the recalculation of the years of contributions to be accredited to estimate the old age pension and the reversal of the maximum contribution base. Both measures have been reiterated by the government in the reform plan sent to Brussels on Friday.
In the document, the Executive points out that “progress will be made in the pension reform” during the course of this year. And it will do that to ‘change’ the ‘calculation period retirement pension’, the self-employed system and the maximum contribution base. The pledge represents the second part of the reform, the first chapter of which was approved in Congress late last year, and which included the revaluation of benefits according to last year’s average CPI.
After several controversies about how many years Social Security will take to calculate the pension – 25 years since January 1 – and its effect on the amount, the minister of the branch, José Luis Escrivá, has always insisted that the goal is “to improve the situation of people who have not been the best in recent years.”
The reform plan sent to the European Commission contains no major tax developments other than a reiteration of the commitment to review registration and motor vehicle taxes and promote green taxation (fluorine-containing gases and hydrocarbons). However, due to the current context of skyrocketing fuel prices, no date for the measure could be set. Nor the long-awaited tax reform, paralyzed by the new scenario that emerged with the outbreak of war.
In fact, the government explains in the document that the fiscal strategy presented until 2025 is proposed “in a context of absence of measures, except those related to energy tax cuts or extraordinary aid for the war in Russia”. that year the tax reform would not be implemented. It would be difficult to do so in a scenario that has already forced the executive to sharply revise its GDP forecast for this year, from 7% to 4.3%.
Faced with this economic slowdown, the big challenge is to sustain the path of fiscal adjustment needed to clean up public accounts and not be so vulnerable to future crises. Well, the stability program maintains the 5% target that was already planned. And it does so because the government is confident that the good inertia of collection in 2021, when revenues increased by 15%, will continue this year with a 7.4% increase.
Montero argued that the recent improvement in collection is “80% due to economic growth and job creation, which has led to an increase in income tax and social security contributions”, criticizing that the main factor driving income is just inflation.
Forecasts suggest that, if these targets are met, the deficit will continue to decline until the end of 2023 at 3.9%. Yen 3.3% the following year. It would already be in 2025 when the deficit, with a reference of 2.9%, would fall below the 3% limit set in the Brussels fiscal rules, which have been suspended since 2020 and which are expected to be reformed for next year.
In this context of growth (though lower than expected) and deficit reduction, government debt is expected to fall to 118.4% of GDP in 2022 and 115.2% in 2023, according to the plan sent to Brussels. The ratio would continue to fall to 109.7% in 2025.
Source: La Verdad
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