Improving productiveness to cut back debt within the face of the problem of growing old: the recipe of the Bank of Spain and AIReF | EUROtoday

The public debt in Spain, which is situated on the finish of March within the 109% of GDP (which implies that what the nation owes is equal to every part it will probably produce in a yr elevated by 9%), it would face a bleak future within the coming years: though it has fallen since 2020 – when it exceeded 120 % of GDP -, within the coming years it would cease doing so and on the finish of the last decade it would start to rise once more, pushed by the impact of the growing old. that’s the forecast Bank of Spain and the Independent Fiscal Responsibility Authority (AIReF), who guess on a productiveness enchancment to comprise it sooner or later.

“With the public debt, It is difficult not to be in the club of catastrophists“. The confession is Esther Gordo, Director of Economic Analysis of the AIReF, and he used it this Wednesday to open his participation within the third EsadeEcPol Taxation Forum. “Debt sustainability is once again at the center of concern due to the high levels with which we emerged from the crisis, the high pressures for the future, because we do not know at what moment the tolerance of the markets can change and because “We are going to must face troublesome selections such because the reform of the tax system.”

To reduce the public debt rate in relation to the Gross Domestic Product there is -mathematically- two options: reduce the numerator, that is, reduce the volume of debt, and/or increase the denominator, increase GDP, and experts call for acting on both levers, without forgetting the second. The growth forecasts for the coming years are not entirely encouraging and the contribution of employment will be limited by demographic aging, which is why it is key to promote productivity: “The evolution of productiveness is one thing that should be reviewed deeply as a result of the contribution of the labor issue, which is what has made us develop in recent times, goes to finish and now we have to search for new sources: productiveness is the elemental “, and we also have to act on the capitalization of the economy. We are very concerned about the evolution of investment, because Spain is decoupling compared to other economies.”

“We have a serious productivity problem “that stops us from converging our per capita earnings with that of the European Union,” agrees with her Carlos Thomas, Deputy Director General of Economy and Research of the Bank of Spain. This institution remembers that Spain is among the 25% most indebted countries in the EU and warns that, without a consolidation plan, the debt will begin to rise from 2030 due to the effect of aging and will reach 120% by the end of that decade.

Both organizations are also in favor of acting in the numerator, that is, containing the debt in some way, for which it is essential to reduce the distance between public income and expenditure. Spain has a problem budget gap -in the last two decades it has only registered a surplus from 2004 to 2007-, which denotes that there is a structural deficit that we cannot eliminate even when the cycle blows in our favor. Even when the country is growing at full capacity, the public accounts do not balance and this problem has worsened since the pandemic: the Bank of Spain estimates that this structural deficit has risen to 3.7% in 2023.

To fix it it will be necessary to undertake a Tax Reformthe great pending subject of the Spanish economy that should be done based on a national political consensus and with the involvement of the autonomous communities, but experts also point to other measures such as spending control, improving the efficiency of public finances and even the creation of “a central fiscal capability at a supranational degree to finance European public tasks similar to industrial coverage, protection or local weather change”, as proposed by AIReF.

The impact of aging

The increase in the proportion of people over 65 years old on the total population is one of the greatest threats to public finances in the coming years. Not only will it affect the General Administration of the State, due to the pressure that the public health system will experience on the spending side. pensionsbut the autonomous communities will also see spending skyrocket on powers that they have transferred, such as health or the care long lasting.

“Uncertainty is excessive, given the low start charges and the excessive ranges of longevity“Even if we assume a very favorable evolution of immigration, the problem of rising debt will be there,” warns AIReF, which expects that within the subsequent 5 years the debt will cease its decline for 2 causes: that inflation will depart to contribute to an 'synthetic' improve in GDP, for the reason that public deficit will probably be stabilized at round 3.2% of GDP till 2028. From then on, nevertheless, he believes that the price of growing old start to enter the dynamic with a major improve in debt for the reason that finish of this decade.