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Contributions must rise 2.25 points to cover the goal of spending on pensions

Date: May 20, 2024 Time: 10:00:58

The pension reform introduced changes on both fronts of the pension system in an attempt to increase both spending and revenue. The Ministry of Inclusion, Social Security and Migrations set itself the objective of ending the tax cuts due to the reform carried out by the Government of Mariano Rajoy in 2013, for which it linked the rise in pensions to the CPI, introduced increases in the minimum contributions and incorporated improvements to alleviate the gender gap. A host of improvements that are accompanied by a significant increase in spending that José Luis Escrivá’s portfolio hopes to cover through contributions.

The Government’s objective is that the budget allocated to pensions does not exceed 15% of GDP. And for this, it hopes to increase income by 1.7% of GDP thanks to the increase in the maximum contribution base, the introduction of the solidarity quota that will be paid by the highest incomes and the Intergenerational Equity Mechanism (MEI). However, the group of experts from the Institute for Economic Studies believes that the calculations of Escrivá’s team are too optimistic. The think tank associated with CEOE estimates that this increase in collection will barely represent 0.95% of GDP, so they understand that it will be necessary to raise the contribution rate by 2.25 percentage points to offset the 0.75% of GDP remaining.

José Enrique Devesa, professor of Financial and Actuarial Economics at the University of Valencia and one of the signatories of the study, affirms in conversation with La Información that all of these 2.25 points will be charged -predictably- on the MEI, although it will be done progressive. In the first part of the pension reform, the Ministry, unions and employers agreed that the new tax would be 0.6% with the aim of feeding the Social Security piggy bank, which will not be used until 2032, when the pension begins. system voltage spike. However, barely two months after it entered into force, a bilateral text was closed to double the rate to 1.2%.

According to the calculations of the group of experts assembled by the CEOE, between now and the end of the transit period, the MEI will rise to at least 3.45%. Given that this increase would be necessary to cover the level of spending provided for in the royal decree approved in March and neither the Ministry nor the group of experts rules out that additional increases will take place to guarantee the sustainability of the system. In any case, Devesa rules out that the 2.25 points will be added before 2025, since this is the scheduled date for AIReF to begin carrying out an analysis of the projections of the impact of the measures included in the reform.

In fact, the standard already provides for a complementary MEI that acts as an automatic mechanism that is activated in the event that the planned expense is exceeded and no other measures have been agreed to compensate it at the dialogue table, regardless of the evolution of the MEI that the group of analysts calls ‘basic’ which will be 1.2% in 2029 income. Although, the company takes the lion’s share, with a ratio of 5 to 1 at the current rate of 0.6%.

The IEE calculates that, as the tax is currently designed, it will report an increase in income equivalent to 0.41% of GDP, that is, it will have a weight similar to the increase in the maximum contribution bases (0.42% of GDP) and applying the rise of 2.2 points its weight would exceed 1.16 percentage points. However, the team of experts points out that these are maximum values, since they work on the hypothesis that the labor market and specifically the demand will not be altered by the rise in labor costs, which can be up to 6 .3%, depending on the salary received by the worker.

Precisely what the impact of these measures on employment is, the key that will make the latest pension reform succeed or fail, as the ministry itself admitted in the presentation of the package of measures. Escrivá’s team pointed out that it was necessary for the labor market to evolve until it was comparable to the markets of the European environment, that is, for unemployment to be reduced to below two digits. While the CEOE points to rates close to 5%. From the portfolio they assure that the labor reform will manage to improve the data, but they do not dare to venture their own shares of markets such as the US. For their part, employers’ experts are skeptical and point out that this increase in contributions could destroy up to 190,000 jobs in the long term.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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