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Spain to plan minimum cuts to pension system

Source: Bloomberg - Mon 30th Sep 2013
Spain to plan minimum cuts to pension system

Spain Will will cut its pension-system deficit by the minimum amount recommended by the expert panel it consulted on an overhaul, according to a draft law sent to parliament.

The government will tighten the shortfall by 25% per year, compared with the 25 - 33% range recommended by the task force on June 7, according to the bill sent to parliament last week. It will start those cuts from 2019, compared with the experts' recommendation of 2014 to 2019.

An unnamed spokeswoman for the Ministry of Labour announced the bill will be discussed in parliament tomorrow and declined to comment further.

PM Mariano Rajoy, facing a slump in popularity, is raiding Spain's welfare-reserve fund for the 2nd year to maintain pension payments even as the nation's 26% jobless rate undermines the social-security system's finances. The government is tightening pension rules to comply with recommendations from the EU, which is overseeing the country's bank-bailout program and trying to steer its public finances back to health.

Spain's total public deficit was 6.8% of GDP last year, excluding the cost of bailing out banks. The national social-security system, which includes the pension system, had a deficit of 1% of GDP last year, or 10 billion. The European Commission has given Spain until 2016 to reduce the total deficit to below 3% of GDP.

While the so-called sustainability factor doesn't come into effect until 2019, rules on how much pensions can rise come into effect next year.

The bill will be discussed by lawmakers on the cross-party pension committee and approved by parliament, where Rajoy's Partido Popular has a majority.

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