The basic deficit of Social Security, including the Passive Classes and before State transfers, has warned of 12,700 million euros between 2019 and 2023, the equivalent of one point of GDP, according to calculations made by Fedea in an article prepared by its deputy director, Ángel de la Fuente.
In said article, the author analyzes the accounts of the Expanded Social Security (SSA), an aggregate that combines the Social Security system with that of the Passive Classes of civil servants. De la Fuente calculates two indicators of the SSA deficit that measure the additional resources that the State has to inject, possibly in part through debt, to cover the gap between the system’s spending and its own income.
The first, which the author calls the basic deficit, is simply the total budget deficit of the system without taking into account current transfers from the State. The second, the tax shortfall, is the difference between SSA tax expenses and income. For his estimates, De la Fuente, using 2019 prices, uses the settlement of the Social Security Budget for that year and the budgets approved in subsequent years.
According to Fedea’s analysis, while real GDP probably did not change between 2019 and 2023, both the income and expenses of the Social Security system grew “appreciably.” Within spending, the items that have grown the most proportionally, with almost 65%, are those of a non-contributory nature. In this area, De la Fuente highlights the “meritorious effort” made by the Government to improve the financing of the dependency care system and the creation of the Minimum Vital Income (IMV) as a last resort benefit for the protection of the most vulnerable.
However, in absolute terms, the author warns that the increase in non-contributory spending (some 4,000 million euros at constant prices) is much lower than the spending on contributory benefits, which is close to 18,000 million, of which slightly more 16,000 million correspond to spending on pensions, including those of Passive Classes. Revenues, for their part, have warned considerably more than expenses (20.7% compared to 12.8%), with which the system’s budget balance improved from 16,700 to 6,400 million euros between 2019 and 2023.
However, De la Fuente warns that this improvement “is exclusively due to the very strong increase in State contributions, which have more than doubled in four years while the system’s own income from social contributions has grown less than spending” . If the basic deficit (the one registered before state transfers) is taken into account, the deficit would be in danger of 12.7 billion or one point of GDP between 2019 and 2023, which indicates, for the author, an increase in the gap between expenses and revenues. own resources of the system and with it a greater burden for the General Treasury of the State.
Limit spending on pensions to free up the state
Something similar happens with the tax deficit which, according to De la Fuente, is also increasing “to worrying levels.” Thus, he maintains that in recent years the expenditure on contributory benefits has been more than 30% above the pure contributory income of the system. In fact, he points out that, with data from 2022-2023, the gap between expenses and tax income is around 48,000 million euros, at 2019 prices, approaching 4% of GDP. This means absorbing “around a third of the total tax revenue of the State”, as well as “a substantial part of the deficit of all public administrations”.
Between 2019 and 2023, the system’s debt with the State, both gross and net of the Reserve Fund, has convinced almost 90% to reach around 100,000 million euros, adds De la Fuente. “Until recently, Social Security contributory benefits have been financed higher with social contributions paid by workers and their companies. Increasingly, however, the income from the contributory social protection system has had to be supplemented with contributions from the State charged to general taxes”, denounces the deputy director of Fedea.
In his opinion, these “increasing” transfers have been reducing the margins available to meet other needs “in a way that is already worrying and could be much more so in the coming decades if it is not possible to limit the growth of pension spending” .