Spain: The ruin of Social Security: its debt will amount to 9,700 euros per pensioner
In the mid-1990s, the Social Security system was going through a serious crisis. From the PSOE government that Felipe González presided over, Spaniards were invited to save on private pension plans as a precaution against such drift. It should not be forgotten that between 1982 and 1996 hardly any employment was created in net terms, so that felipismo inherited a Spain with twelve million employees and delivered a country with a very similar number of employed persons.
The slow rise in Social Security income, actually supported by tax increases, contrasted with an increasing number of retirees, introducing new spending pressures. The system seemed to be on the way to bankruptcy and, after José María Aznar came to the government, the PP cabinet was forced to request a loan to meet Social Security’s payment commitments.
The intense job creation that occurred during Aznarism helped to rebalance the system and dispelled the phantoms of bankruptcy of pensions. Between 2004 and 2008, under the government of the socialist Rodríguez Zapatero, the positive balance of Social Security was maintained, although with an income component increasingly tied to employment generated by the housing bubble.
The collapse of the brick knocked down the illusion of prosperity of the first ZP legislature and led Social Security into a worrying drift. If in 2008 it still had a surplus of 1.3% of GDP, in 2010 it was already on the verge of deficit. Since 2011, the system has been in the red, with annual deficits that have been between 15,000 and 20,000 million.
The only way to continue paying pensions in such a situation was to use the Social Security Reserve Fund created by the José María Aznar government. This vehicle accumulated 66,800 million between the year 2000 and the 2011 academic year. However, the imbalances between contribution income and benefit expenses forced to empty that piggy bank between 2012 and 2019. Currently, there are only about 1,500 million in cash .
In fact, since these resources were no longer sufficient to offset the deficit of the system in 2016, Social Security debt has soared since 2017, rising from 17,000 to 50,000 million.
The impact of the covid-19
However, the 2020 accounts threaten to raise this figure to unprecedented levels. At the beginning of the year, the government already expected to inject 14,000 million to cover the extra payments for summer and Christmas, but the crisis of the covid-19 has caused a fall in revenue valued at another 14,000 million. To this second figure should be added the increase in spending on unemployment benefits, which will increase by 17,000 million.
It is true that the European reinsurance program that will finance the payment of ERTEs can mitigate these obligations by 15,000 million, but even discounting such item we find that the deficit of the system is going to double. Therefore, everything invites us to think that the 2020 course will close with obligations close to 85,000 million, equivalent to 9,700 euros per pensioner.
During the last fifteen years, the only attempt to reform the system was the introduction of the sustainability factor, promoted under the government of Mariano Rajoy. Under the years of the popular leader’s mandate, pensions experienced very moderate increases: 1% in 2012 and 2013, 0.25% in 2014, 2015 and 2016.
This system managed to stop the increase in spending and began to favor a turnaround in the system’s balance forecasts. However, this perspective was shattered in 2017, when the PP’s parliamentary negotiations with Cs and PNV ended in the revaluation of pensions under the CPI. Since then, increased spending on the system has only contributed to widening the Social Security deficit. The Covid-19 crisis comes, then, at the worst moment, since the only attempt to correct the imbalances of the pension fund was buried a few years before the outbreak of the pandemic.