Spain | Pension deficit and Stability Program

Summary

Once the last reform decision did not restrict the increase in spending and did not eliminate the actuarial imbalance, the sustainability of the pension system will involve a constant increase in taxation and transfers from central government, increasing the burden on the younger generations.

Key points

• Key points:
• Funding spending on contributory pensions via transfers from central government is legitimate, but has two consequences. The first is that it breaks with the principle of separate sources of funding, generating an inconsistency and thus the possibility of comparative grievances. It is clear that the amount of a contributory benefit funded by social insurance contributions varies according to the effort made.
• The second consequence is that, in terms of the public accounts, the deficit is simply transferred from the Social Security system to central government without society being fully aware of the financial health of the pension system.
• In any case, it is necessary to know the real capacity of the system to finance itself without transfers from the central government.
• Our calculations put the deficit at the end of 2021 close to 27 billion euros (2.2% of GDP and around 1,350 euros per worker), mid-way between the deficit in 2019 (1.5% of GDP) and 2020 (2.7% of GDP). Spending on pensions and other benefits (not including the civil service and military) would be 13.8% of GDP and revenues,11.6%.

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