The Independent Authority of Fiscal Responsibility (AIReF) warns that the ratio of debt to GDP will stabilize in the next decade in the environment of 90% if the budget balances of the different subsectors are maintained at their current level andmainly for the cost of pensions.The ratio would increase from then on,being able to reach 132.2% of GDP in 2048.
This follows from the last debt observatory conducted by AIReF, which calculates the impact of thepublic debtof the recent forecasts of pension expenditure, from which the risk ofthe ratio of debt to GDP stabilizes around 90% in the next ten yearsin an inertial scenario with constant policies, which implies maintaining the budget balances of 2018, and taking into account the accumulated expense of maintaining the purchasing power of pensions.
AIReF estimates that linking pensions to inflation will put pressure on spending, especially after the 1930s,as a result of the retirement of the baby boom generation, which will raise spending on pensionsfrom the current 10.6% to 13.4% of GDP in 2048,and as a consequence the primary deficit of the pension system will mean an increase in accumulated debt close to 50 points of GDP in 2048.
In this way, the ratio of debt to GDP could pass, in a scenario of constant policies, from 88.8% of GDP in 2030 to 132.2% of GDP in 2048, with a forecast of a deficit in the Social Security system. of 1.5% of GDP in the 2018-2048 average, if no additional measures are taken that involve an increase in resources or cost containment.
In a "normative scenario" in which pressures from the updating of pensions to the CPI are assumed, AIReF calculates that public debt could stabilize below 75% of GDPif there is a fiscal policy convergent to the budget balance in the long term, oriented to drive the 'stock' of the debt of the different subsectors to its reference level: 13% of GDP for the autonomous communities, 44% for the State and Social Security.
Of course, this scenario implies reaching and maintaining indefinitely very demanding primary balances from a historical perspective, in particular for the Central Administration, in line with the maximum observed in the last 20 years, so thatwould have to maintain a primary surplus of 2% to finance the growing pension deficit.
Parametric reforms for the 60% objective
Given these estimates, AIReF advocates to deepen the parametric reforms of 2011 to improve sustainability, and aims to close the legal and effective age gap in 2048, and extend the computation period of the initial pension to 35 years.It supposes a cost in pensions similar to the revaluation with the IRPF at the end of the period. These reforms imply an average primary balance of the period of 0% and an impact on debt of 5% of GDP.
The third scenario handled by AIReF considers that to achieve a dynamic of continued reduction of the debt ratio to the reference level of 60% of GDP requires the implementation of these parametric reforms. Under this assumption, compliance with the fiscal rules combined with these reforms will reduce the debt ratio to the level of 60% in 2013.