The Bank of Spain asks to extend the income agreement to pensioners and civil servants to avoid increases according to inflation

The governor of the Bank of Spain, Pablo Hernández de Cos, appeared this Wednesday in the economy commission of the Congress of Deputies to present the institution's annual report and asked that pensioners and civil servants be included in the income pact, the mechanism of collective bargaining that should distribute the damage of inflation between companies and workers and that has been stalled for weeks due to disagreements between employers and the majority unions.

Entrepreneurs and the right threaten a new consensus for pension reform

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Specifically, De Cos insisted that pensions not be updated this year according to the CPI (Consumer Price Index), which according to the forecast of the Bank of Spain will close 2022 above 7.5% on average, and in which the salaries of civil servants rise below this indicator. A demand that extends to the rest of the workers.

For companies, the governor's proposals are less specific: "It would be necessary for the pact to be accompanied by explicit and verifiable commitments to moderate business margins [capacidad de obtener beneficios de las ventas]”.

He did not mention price limits, nor any other measure regarding this control of the profits of the companies, which according to the data known so far would be transferring most of the increase in costs - due to the rise in the energy bill and materials premiums—at the prices of their products.

"Until now there has been an implicit income pact," he admitted, in relation to the fact that "there has been a significant drop in real wages," he acknowledged.

Government shock plan

"A generalized fiscal impulse should be avoided and a very widespread use of automatic indexation clauses in expenditure items should be avoided," recommended De Cos. In this way, the governor referred to the Shock Plan for the impact of the war in Ukraine on the economy that this Thursday the President of the Government, Pedro Sánchez, announced that it will be renewed for three more months when it expires in June.

“Fiscal policy should help reduce the adverse economic effects of the war, but since the margins of fiscal action are relatively limited [por el elevado endeudamiento y el alto déficit tras el esfuerzo por la pandemia] and high inflation, the measures must be very focused and temporary in nature,” he stressed.

"Thus, it would be desirable to focus efforts on supporting lower-income households, which are the ones that suffer the most from the impact of inflation, and the companies that are most vulnerable to this new disturbance," he continued. In this way, he indirectly criticized measures such as the discount of 20 cents on fuel or the reduction in taxes on electricity.

pension reform

As detailed by the Bank of Spain, “at the end of last year, the first part of a new reform of the pension system was approved”. Among other measures, this reform established the revaluation of pensions based on inflation and repealed the sustainability factor. “According to the projections of AIReF and the Report on Aging of the European Commission, both measures imply that spending on pensions will grow between 4.1 percentage points and 4.3 integers of GDP in the period 2019-2050”, Cos alert.

“Of this increase, around 55%-65% would be due to the recovery of the revaluation of pensions with the CPI, while 20% would correspond to the elimination of the sustainability factor. The rest, 15%-25%, would be associated with the fact that, even with the 2013 reform, spending on pensions would increase between 0.7 and 1 points of GDP between 2019 and 2050, under the demographic and macroeconomic scenarios considered ”, continued

“Therefore, more measures are necessary to balance the system in the long term,” the governor stressed, and concluded: “They are pending approval or specification the development of employment pension plans, the review of the maximum contribution bases and the maximum pension, a new contribution system for self-employed workers and a review of the period considered to calculate the regulatory base of the pension”.

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