April 21, 2021

Spain has increased pension expenditure by 57% since 2008 | Economy

Spain has increased pension expenditure by 57% since 2008 | Economy

The General Budgets of the State of 2019 are played today in the Congress of Deputies. The parties will debate the amendments to the totality presented by Partido Popular, Ciudadanos, PDeCat and ERC and it will be tomorrow when they vote in an atmosphere of division of the constitutionalist forces after the failed negotiation between La Moncloa and the Government and the threat of general elections in spring. A pulse that leaves the 84 Socialist deputies in a very weakened position to achieve support for the Executive accounts for this year.

A decade after the start of the economic crisis in Spain, public accounts have gone through five years of contraction and others with gradual recovery. The evolution of public expenditure items has had an uneven behavior but among them the most important one stands out: the payment of pensions. Since 2008, the chapter destined to pay pensions has increased by 57%, to 153,864 million euros reflected in the draft Budgets for this year. In other words, more than one in three euros of public expenditure goes to pensions.

Behind this strong rebound is the substitution effect – the new pensions that enter the system are much higher than those that come out – and the aging of the population. Added to this is the increase caused by the revaluation of pensions: until 2014, its increase was linked to the annual CPI for November. Although, the minimum and non-contributory benefits were the most benefited by the policy of the Executive of José Luis Rodríguez Zapatero. But from that year the Government of Mariano Rajoy activated the factor of revaluation of the pensions that implied that they raised only 0,25% annual until 2018, year in which they raised 1,6% thanks to the budgetary agreement with PNV .

There was only one year, 2011, in which pensions were frozen. The situation of the public accounts, added to the sovereign debt crisis that hit the euro zone, forced Rodríguez Zapatero to adopt the unpopular decision.

The expenditure on pensions was added to unemployment. One of the items that rose the most in the first years of the crisis due to the rebound of unemployment and that was reduced as improved job creation. Since the highs of 2010, spending has fallen by 41%, to 18,400 million.

Public debt

Another of the items most sensitive to the economic crisis has been public debt. This year the Treasury expects to pay 31,400 million euros in interest, according to the bill of Budgets. The figure is 4.5% higher than last year, although it is a cut of 1,500 million as estimated at the beginning of 2018.

Now, if the balance sheet is analyzed since 2008, the Spanish Treasury has increased this chapter of spending by 89%, from the 16.609 million that it paid at that time. In that exercise, the ratio of public debt to GDP was 40.2%, a level that eight years later reached a maximum of 100.8%. Now it stands at 98.3%.

The increase in spending on interest on the debt has moderated substantially since the highs it reached in 2013 (38,590 million). The hardening of the debt crisis a year earlier, which led Spain to pay more than 5% for placing letters at 18 months is behind that strong rebound that has since been gradually reduced.

However, the greatest increase in these years has corresponded to the industrial policy and energy item, which has increased by 150% since 2018.

On the other hand, the greatest contractions in public spending have been recorded since 2008 in foreign policy (-51.6%) and in access to housing (-50.7%). The infrastructure investment chapter has also suffered the ravages of the crisis and has accumulated a 49% cut since 2008.

The bill that is being debated today in the lower house implies an increase in public spending of 5.3% for this year, up to 345,358 million euros. An item of which social expenditure represents 57.3% and which includes subsidies for dependency, the increase of five to eight weeks of paternity leave or the offer of 20,000 social rental housing.

Among the spending policies, that of pensions registered a growth of 6.2%. It contemplates a rise in pensions of 1.6% – and 3% for minimum and non-contributory pensions. A revaluation whose future does not depend on the Congress approving the accounts given that it has been processed and validated by decree. The same thing would happen with the increase in the minimum interprofessional salary, effective from January 1.

In addition, the policy of social services and social promotion increased by 38.6% thanks to 831 million allocated to care for dependence. Similarly, the item of access to housing grows 41%.

To counteract the significant increase in spending, and implement the fiscal path approved by Congress, which contemplates a reduction of the public deficit from 2.7% last year to 1.3%, the Government entrusted its accounts to an increase in fiscal collection of 9.5%. The Treasury expects to raise revenues by 20,000 million. Of that figure, some 10,000 million would be linked to the improvement of the economy, another 4,500 correspond to the month of VAT pending settlement of 2017. The remaining 5,600 are linked to the tax hike raised for large companies and rents and discharges, as well as two new tributary figures: to financial transactions and the rate to certain digital activities. Two new taxes whose parliamentary procedure is carried out in parallel with the Budgets.


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