The Social Security deficit will mark a new record in 2020 and will rise to 4.1% of GDP in 2020, a figure that is equivalent to more than 45,000 million euros. From the Budget Plan sent yesterday by the Government to Brussels it is also extracted that the total deficit of the Public Administrations will rise to 11.3% this year and will fall to 7.7% in 2021. With the sights set on 2021, the projections are softened with a deficit of 3% expected for Social Security, but it will continue in the red, a situation that has dragged on since 2011.
The deterioration of the Social Security coffers is produced by the situation derived from the coronavirus pandemic in a context of high expenses in the face of dwindling income. During the first half of the current fiscal year, the collection from contributions fell 3.8% compared to the previous year compared to expenses of 3%, according to data from BBVA Research.
Despite the state of the accounts, the Government maintains its commitment to revalue pensions in 2021 according to inflation. This will lead to an increase of 0.9% – in line with this year – based on the GDP deflator for 2021 of the macroeconomic table established in the Budgets. If this rise is executed, it would be the fourth consecutive year in which pensions have risen above the legal minimum foreseen in the revaluation index, which is situated at 0.25%.
Indirect tax increase
With the aim of increasing revenues and trying to rebuild the public coffers of the plan, forecasts of tax collection of a total of 9,170 million euros are given off during the 2021-2022 biennium. Tax revenue will come from taxes on plastic packaging, an increase from 10% to 21% of VAT on sugary drinks and the entry into force of the “Google” and “Tobin” rates, among other measures.
Within this forecast of fiscal income it is also established that a total of 2,548 million euros will be obtained through direct taxes. The document does not detail how this item will be articulated, which could go through an increase in personal income tax on high incomes, as included in the Coalition Government program agreement. In the Government pact, an increase in personal income tax was agreed to for those taxpayers who earned more than 130,000 euros.
Likewise, the Minister of Social Security, José Luis Escrivá, has left the door open on several occasions to the abolition of some tax deductions, like those that now apply to pension plans. A few weeks ago, Escrivá himself admitted that the Government was considering eliminating some tax deductions, although he did not specify which ones in particular. Escrivá argued that Spain has the “uniqueness” of being the European country with the most tax benefits, something that leads public administrations to renounce income.
This adds that at the beginning of March, before the pandemic will change everything, the Minister of Social Security already declared that he was considering removing the deductions in the income tax base for contributions to individual pension plans of up to 8,000 euros per year. Removing the tax relief would mean a saving for the public coffers of 2,000 million euros, according to the minister.
A report by the Independent Fiscal Responsibility Authority (AIReF) commissioned by the Government estimated the tax benefits for taxpayers at up to 60,000 million.