The OECD urges Spain to reform pensions making an allowance for the rise in life expectancy | Economy | EUROtoday

This Wednesday, the Organization for Economic Cooperation and Development (OECD) joined the cascade of reward that the Spanish financial system has acquired for months. “It has performed very outstandingly, registering GDP growth higher than that of other European countries and most economic projections,” he factors out in his report on Spain. The doc, nevertheless, seeks extra to be a information to motion for the longer term than to make a prognosis of the present second. And there, a number of of their requests battle with the Government’s insurance policies, particularly relating to pensions and taxes.

Regarding the previous, the group warns that regardless of current reforms, reminiscent of the rise within the authorized retirement age, the extension of the contribution interval, the Intergenerational Equity Mechanism (MEI) and the reform of the Special Regime for Self-Employed Workers, the hole between pension spending and earnings is predicted to widen within the coming a long time. Therefore, he sees further measures as crucial. Among them, he cites the institution of an adjustment for all times expectancy (which already exceeds 84 years), the extension of the reference interval for the calculation of pension rights or comparable mechanisms. “For the debt to follow a path of firm decline, it is necessary to address the increase in pension spending, reduce inefficient spending and improve tax collection,” he recommends.

It rejects, nevertheless, that the tax burden falls on work, warning that new will increase in Social Security contributions “could harm employment.” According to the OECD, the ratio of taxes to GDP paid in Spain in 2023 was 37.3%, greater than the 33.9% common among the many nations within the membership of the richest economies on the planet. However, it collects much less from consumption than its EU and OECD companions, which is why it sees it crucial to hold out a complete tax reform to rebalance funds and develop revenues. “Options include harmonizing VAT rates and reducing exemptions, equalizing excise taxes on diesel and gasoline, and strengthening taxation of energy and vehicles, along with reducing tax wedges for low-income families,” he lists.

The demographic invoice flies over the 132 pages of the textual content, the place the OECD makes use of Airef calculations that spending on pensions will develop by 3.2 factors of GDP between 2023 and 2050, and spending associated to growing old will enhance by 5.2 factors. “Expenditure on pensions will increase, creating a growing volume of implicit liabilities that are not currently provisioned. The indexation of pensions to inflation and the lack of an automatic adjustment for increased life expectancy increase the costs of the system,” he warns.

Given this, it requires encouraging older staff to stay employed and increasing grownup schooling. “The employment rate of older workers has increased over the last two decades, but remains low. Their employment rate is below OECD levels and declines sharply after age 55 due to early retirement, skills obsolescence and limited job adaptability,” he explains.

Asked if the Government plans to take further measures to cope with pension spending, as requested by the OECD, the Minister of Economy, Carlos Body, insisted that Spain is complying with European fiscal guidelines, and recalled that the Executive has launched a closure clause by which an computerized contribution enhance is activated whether it is calculated that earnings and expenditure forecasts usually are not met sooner or later. “The Airef report for now says that there is no deviation, and does not recommend additional measures to guarantee sustainability of the system and public accounts,” he defended in the course of the presentation of the report in Madrid.

At the occasion he was accompanied by the Secretary General of the OECD, Mathias Cormann, who assured that the “ambitious” reforms that Spain has carried out in recent times ought to serve for example for different nations – France, which he didn’t point out, appears the obvious. Regarding the shortage of Budgets – the final accounts to be permitted have been these for 2023 – Cormann restricted himself to displaying his confidence that democratic dynamics are essentially the most environment friendly.

The OECD additionally helps different formulation to enhance the sustainability of public accounts. How Spain improves the inclusion of immigrants within the labor market. If there isn’t a change in pattern, the arrival of foreigners will push the Spanish inhabitants past 50 million inhabitants within the second half of 2026. And there’s room for enchancment in areas such because the simplification of pre-arrival work visas, bilateral labor agreements, the popularity of levels or a rise in workers to handle arrivals. Steps that “could attract more skilled immigrants and help alleviate labor shortages.”

The entity admits that Spain’s public funds have improved, with debt accumulating decreases since 2021, which positioned it at 101.8% on the finish of 2024. However, that degree continues to be excessive, and the OECD estimates that the rising strain to spend extra in the long run on gadgets reminiscent of protection, local weather change and the aforementioned growing old, makes it essential to have extra fiscal house. “To address these pressures without compromising growth, it is essential to maintain a credible fiscal policy over the medium term, while creating room for growth-boosting spending, combined with policies that foster potential growth.”

The second of prosperity that the Spanish financial system is experiencing, which is rising at a charge shut to three%, is for the OECD conducive to rebuilding funds and leaving them able to face turbulences to come back. “Given the strong growth momentum, accelerating the pace of deficit reduction would allow Spain to more quickly rebuild fiscal buffers to respond effectively to future crises or recessions,” he insists.

More building

Beyond the general public accounts, the report delves into points such because the state of affairs of the banking sector, “well capitalized and profitable despite the tightening of financial conditions.” The phenomenon of local weather change, which may hit Spain with particular virulence, affecting crops and infrastructure. Or the most well liked agenda politically, housing.

On this level, it requires growing the availability of reasonably priced housing, accelerating city growth procedures, and in the end, investing extra in social housing. “Only 345,000 construction permits were issued between 2022 and 2024, well below a net creation of 604,000 homes,” he recollects.

In addition, it addresses structural problems with the Spanish productive cloth, such because the state of affairs of SMEs, which characterize 99% of firms and make use of nearly all of the workforce, primarily within the providers sector. The OECD laments that they are typically “significantly less productive than large companies.” It blames its restricted entry to exterior financing and expert labor, regulatory complexity, and decrease adoption of superior digital applied sciences. “Two-thirds of SMEs report difficulties hiring workers with the right skills, while many lack the resources to develop and implement training strategies,” the report states.