The Government proposes, once again, a rise in taxes. The Minister of Social Security, Jose Luis Escrivá, has presented this afternoon to the social agents the design of the new intergenerational equity mechanism that will replace the sustainability factor and that focuses its proposal on raise prices by half a point for ten years to employers and workers. Instead of cutting spending on pensions, Social Security proposes to provide a new reserve fund with which to have a cushion to use the savings and returns generated during that decade to meet the spending deviations expected by the arrival of the baby boom ‘.
The mechanism would start from 2023 to 2032 And the idea is that the level of pension spending planned for 2050 be verified every three years to see if it is necessary to apply another series of measures, as recorded in the documents presented this afternoon to the negotiating table and to which this has had access. daily. According to them, it is a “Finalist contribution”, which would mean about 6 euros per month for a worker with a salary of 1,000 euros, with which it is intended to provide a piggy bank that will be used if the pension expenditure deviates from what is marked by the “Aging Report” of the European Comission. In the event that spending deviates from what the European Commission considers sustainable, the money saved in this piggy bank would be used. Otherwise, it would be returned via an increase in pensions or a reduction in contributions.
The truth is that time is pressing to have ready the new intergenerational equity mechanism that will have to replace the much-maligned sustainability factor introduced with the 2012 reform. According to the law itself, the mechanism must be drawn up before November 15 and introduced via amendment to the reform now being processed by Congress. The idea was that the formula would also have been negotiated by that same date, both with the social agents and with the parliamentary forces. But this task seems practically impossible.
This mechanism has been generating strong uncertainty, because although the Minister of Social Security has insisted that he would guarantee the “sufficiency” and “revaluation” of pensions, everything indicated that the new mechanism would affect the amount of pensions or the period of working life, since it must correct the strong lag that exists between the income and expenses of the system, especially in the years of greatest demographic tension, that is, with the arrival of the baby boom. Finally, the minister’s proposal has focused on an increase in labor taxes.
According to calculations by Rafael Doménech, head of economic analysis at BBVA Research, the repeal of the sustainability factor will mean a progressive increase in spending of 1% of GDP, just over 10 billion, until 2050. The new equity mechanism, therefore, You will have to introduce an adjustment of at least the same size if you do not want to increase the red numbers of the pension system.
So far, Minister Escrivá had limited himself to saying that he was working on a “contingent mechanism”, which would be activated only in moments of crisis that put the accounts of the system to the test. “It will be activated only if the evolution of the income and expenses of the system so requires” and only in “the years in which the system will bear more demographic pressure”, in order to “protect especially” young people.
A few words that once again turned their gaze to the ‘baby boom’ generation, whose retirement at the end of this decade will pose an unprecedented demographic challenge for the national pension system. The minister already recognized in summer, in statements that raised a strong dust, that this generation would have to choose between “working a little more” or “charging a little less.”