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Published on Monday, October 17, 2022

Spain | The pension deficit within the national budget

The announcement of Spain’s government budget for 2023 has once again brought the subject of pensions back into the limelight, as this particular budget item has seen the largest increase and will require a record level of transfers from the State to finance the deficit.

Key points

  • Key points:
  • The revaluation of the pension system to match the CPI, coupled with an increase in the number of pensions and the substitution effect of canceling pensions and arranging others, will push up pension expenditure by more than 11%. Revenue growth is unlikely to match that pace.
  • The public pension system should pursue the long-term objective of increasing in value in line with inflation in order to maintain its purchasing power, but without jeopardizing its sustainability in the process. To succeed, Spain needs to design a sustainable and self-sufficient system, as other EU countries have already done.
  • The problem is that Spain is on rocky ground to begin with. Our financial and actuarial deficits are already very high and are growing, thus threatening the sustainability of the system and requiring ever-increasing levels of fiscal pressure, which is passed on to the working generations.
  • Looking ahead to 2023, the Social Security system will need transfers from the state approaching 39 billion euros, representing just over 25% of the expected 152 billion euros in Social Security contributions. Despite these transfers, the deficit will still stand at around 7 billion euros. When it comes to the pension system, the deficit of the contributory system will increase to more than 30 billion euros (2.2% of GDP), with revenues equivalent to 12.0% of GDP and expenditure rising to 14.2%.
  • Even if the growth projections are met, the deficit will continue to climb, thus requiring an increasing volume of transfers or loans from the State. The revaluation of pensions in line with the CPI should have been addressed more comprehensively, with other equivalent expenditure containment measures put in place in the medium and long term.

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