The Bank of Spain calls attention to the challenge of pensions. Neither the arrival of immigrants, nor contribution increases, nor incentives to delay retirement will be sufficient on their own to address a problem of “extraordinary magnitude” and “one of the greatest challenges that the main economies in the future will face.” coming years,” he points out in his annual report published this Tuesday. In Spain, furthermore, aging will be even more pronounced than in other countries: in 2053 the forecasts made by the National Institute of Statistics on resident foreigners would need to be tripled so that the relationship between the number of people of legal age can remain the same. of working and that of pensioners. Within three decades, the INE expects that in Spain there will be 14.8 million pensioners, 18 million nationals of working age and 12 million active foreigners. With these figures, the proportion between employed and retired people would be very narrow. So to maintain the current dependency rate, located at 26%, the Bank of Spain explains that the immigrant working population would have to increase by more than 24 million to a total of 37 million. There would be many more foreign workers than Spanish ones. And it would imply that some 800,000 jobs would have to be created a year just to accommodate these arrivals.

With more than 17% of residents born abroad, Spain is already among the four countries in the world with the highest proportion of foreigners after the United States, Germany and the United Kingdom. In light of these numbers and despite the high dynamism of migratory flows to Spain, “it does not seem likely that immigration can prevent the aging process in which our country is immersed,” he concludes. On the other hand, although they contribute decisively to alleviating the labor shortage, immigrants do not have the training of those born in Spain and would not serve to that extent to respond to the needs that the technological transformation will create, warns the organization that directed by Governor Pablo Hernández de Cos.

The supervisor also questions the projections of the Government and the European Commission regarding the pension item: first of all, he remembers that disbursements in benefits have always exceeded the figures that were expected and that, consequently, these have been continually revised upwards. . And, on the other hand, he directly questions one of the main savings measures that the Executive has proposed and that Brussels has accepted as good: the incentives to voluntarily delay retirement beyond the legal age. The Government's calculations maintain that in 2050 spending may decrease by about 1.4 points of GDP because half of the workers will voluntarily delay their retirement for three years. The Bank of Spain does not even question the number of citizens who are going to postpone their retirement, which has increased from 4% to 8% of retirements in recent years and which, therefore, is far from 50% of them. Regarding this, the supervisor simply states that there is a lot of uncertainty about how many will delay their retirement.

But what is questioned is the amount of savings that can be obtained by taking the sample of Social Security work lives. With these, he points out that the savings could be much smaller: at least half of what the Executive calculates, partly because later they would have to pay more benefits for the incentives. These consist of 4% more pension per year delayed or a much smaller figure in a single disbursement. For each year that retirement is postponed, the Government calculates a saving of nine tenths of GDP, while the Bank of Spain estimates it between two tenths if everyone takes the 4% annually and six tenths if everyone takes the single payment. Consequently, instead of half of the workers, all ordinary registrations would have to occur three years later taking the single payment to get closer to the savings figure expected by the Government. If a significant percentage took 4% annually, as would be logical, the savings would end up being much lower. “It would have a limited effect on reducing pension spending,” said Governor Pablo Hernández de Cos in the presentation of the report.

As it has argued on other occasions, the institution remembers that the pension reform approved between 2021 and 2023 has increased spending obligations without increasing income to the same extent. And he points out that in 2025, with a high probability, the pension review clause imposed by Brussels will be implemented. This requires that, if other alternative measures are not agreed upon, contributions must be raised by the value of the planned deviation in spending. However, the Bank of Spain advises against taking the route of increasing social contributions: according to its estimates, for every point that contributions increase, 0.25% of employment is lost after four years. About 50,000 jobs for each point. The approved reform already contemplates an increase of almost three points without implementing the 2025 review clause. It could be detrimental to employment, the competitiveness of the economy and have consequences on intergenerational equity, says the supervisor.

For this reason, it proposes analyzing alternatives to price increases. And among them it puts on the table evaluating the so-called replacement rates. Or what is the same: how much percentage of his salary does the worker take to his pension. This is a measure of the generosity of the system and is a figure that is higher than the average of the surrounding countries, notes the Bank of Spain. Reducing it would mean a cut in the initial pension but would help the sustainability of the system. It also calls for examining the evolution of private savings and their capacity to complete the public benefit system.

Income tax pressure increases due to inflation

On the other hand, the supervisor puts figures on the increase in public income due to inflation. He estimates that since 2019, about a third of the increase in personal income tax collection is due to not having updated the rate with prices. It is 11,000 million euros. This dynamic has raised the average rate paid for income tax from 12.8% in 2019 to 14.7% in 2023. 70% of this increase in the rate paid is explained by the non-updating, that is That is to say, with the salary increase the worker takes a step forward and pays more, which in the jargon is called cold progressiveness.

Although the effective rate has increased more for brackets between 16,300 and 28,500 euros, they pay little in personal income tax. So those most affected in numbers are those with higher incomes because they are the ones who pay more taxes and thus inequality is reduced. The 20% of taxpayers with the highest income, which starts at 42,000 euros, pay 73% of the collection, indicates the organization. This increase in tax pressure has reinforced public income, it is a phenomenon that has happened in all countries and, according to the bank, will continue to occur if the parameters of the personal income tax rate are not updated, reaching an effective rate of 15 .3% in 2025.

Despite this boost in income, the hole in public accounts has increased structurally. The bank calculated this deficit at 3.1% of GDP in 2019 and now places it at 3.7%, the equivalent of almost half of what is collected through personal income tax. This is a very high figure, both in historical terms and in international comparison, explains the supervisor. And to a large extent it has increased due to pensions. But also due to public consumption due to the increase in employment and current purchases. This heading of public consumption has meant seven tenths of growth for GDP in the last year, a boost that has helped activity, but which raises the challenge of correcting the deviation of public accounts.

The bank estimates that the new European fiscal rules will require an annual adjustment of around 0.5% of GDP for seven years. About 7,000 million euros per year with the current GDP. Cumulatively, it would be 3.5 points of GDP between 2025 and 2031. To give an idea of ​​the effort involved, between 2010 and 2013 an annual adjustment of close to 2.5% of GDP was made. That is, in the accumulated amount there were more than 7 points of GDP of structural correction.

And the institution warns that this deficit adjustment that must be undertaken will affect growth. Precisely for this reason it calls for a recomposition of income and expenses so that they have greater efficiency and quality. Above all, he insists on reorganizing taxes so that they are more favorable to economic growth. The organization recalls that academic literature establishes that it is better to place a greater burden on consumption and environmental taxes, which distort activity less than direct taxes such as personal income tax or corporation tax. These further discourage work and investment, the agency warns.

Increased political uncertainty

Governor Pablo Hernández de Cos has also emphasized the need to regain confidence in the institutions. The perception of its quality has deteriorated more markedly than in other surrounding countries, he underlines in the presentation of the annual report. And this is essential to generate confidence in economic agents. In recent quarters, in surveys conducted by the bank, companies are declaring that they perceive an increase in uncertainty about economic policy. Up to 58% of these companies indicate that it is negatively affecting them and that it has become the first determining factor in their activity. “If they continue, these dynamics could have a negative impact on business investment decisions, in a context in which this has remained very weak in recent years,” warns Hernández de Cos. And, of course, this lower investment would translate into a worse growth path in the future.

The governor recalls that the IMF has already warned about the risks of the lack of political stability: “The lack of these consensuses, in a context of high political fragmentation, would make the design and implementation of structural reforms and the fiscal consolidation plan difficult. , and would negatively affect growth prospects. The extension of the 2024 Budget shows this risk and confirms that the uncertainty shown by business surveys is real,” says Hernández de Cos.

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