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Spainís Social Security shortfall rises to Ä18.6 billion in 2016

Source: El Pais - Tue 28th Mar 2017
Spainís Social Security shortfall rises to Ä18.6 billion in 2016

The fiscal gap in Spainís pensions system is getting wider every year. Job creation has been growing at a rate of 3% over the past two years, and consequently so have Social Security affiliations. But this increase in revenue for the system still does not match spending.

This explains why, in 2016, Social Security ran a deficit that broke its own record, which had been set only a year earlier. This deficit (which covers pensions, not unemployment benefits) was at least Ä18.6 billion, according to provisional Labor Ministry figures.

Considering that average affiliation last year was 17.6 million, this means that every worker signed up with the system has a deficit share of more than Ä1,000.

Ever since the Spanish pensions system slipped into the red in 2011, this fiscal gap has kept on growing. Reforms were passed in a bid to contain the rise in spending, but these have not yet developed their full cost-cutting potential.

And the increase in affiliations through job creation is not growing at a fast enough pace to reduce this gap, according to the figures that the ministry has handed over to the unions and employer associations. Additionally, many of the new jobs are low-paying and often temporary, meaning that their contributions to the system are small.

Labor Minister FŠtima BŠŮez had already warned Congress that this deficit would be something like 1.7% of GDP. This number coincides with the recent ministry figures, which show a Social Security deficit of between Ä18.6 and Ä18.8 billion, a Ä2 billion rise from the previous year. The final figure will be released later this week, before the 2017 budget plan is officially presented on Friday.

Contributions to Social Security, which are closely tied to jobs, represent over 80% of the systemís entire budget and are its main source of funding. These contributions grew 3.15% last year on the back of a better job market, yet the revenues are still falling short of the systemís pension payments, which grew at a rate of 5.87%.

A pending reform

So far this year, Social Security revenues have been growing even faster than last year, at a pace of around 6% according to BŠŮezís own account. But this percentage is an internal number provided by the agency itself, and not necessarily the final official figure.

For several months now, a parliamentary committee has been hearing experts lay out various proposals for closing the fiscal gap in the system. The government has simultaneously opened talks with the CC OO and UGT unions, and with the employer associations CEOE and Cepyme. But negotiations are progressing slowly, and there is no sign of a quick deal on the horizon. On Monday, a UGT spokeswoman, Maricarmen Barrera, described the situation as being ďon stand-by.Ē

The government keeps reiterating that the solution to the Social Security deficit is to regain all the jobs that were lost during the long economic crisis. But an analysis of the figures suggests that something more is required to bump up the systemís resources. One of the options on the table is raising the monthly contribution rates. Another is funneling more funds from the national budget.

One of the reasons for the systemís rising expenditures is the fact that new pensions being paid out now to recent retirees are 38.3% higher that the retirement benefits of older people who are passing away. This is because new retirees tend to have longer and better-paid careers than older pensioners, which means their lifetime contributions to Social Security were higher.

Recommended Reading :

* OECD Praises Spanish recovery but issues alert over rising poverty

* Wealth inequality in Eurozone rises : ECB

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