The Minister of Inclusion, Social Security and Migrations, Jose Luis Escrivahas obtained the approval of the European Commission for its reform of the pensions after having put on the table three levers with which the Government hopes to obtain sufficient income to finance the benefits of the baby boomer generation (born in the 60s and early 70s of the last century). One of these three leversin practice, implies taxing the totality of the highest wageseven in the part that is now above the maximum contribution base, through a temporary tax (‘solidarity surcharge’, according to the expression used by the Ministry of Inclusion).
After achieving the approval of Brussels, Escrivá is preparing to finish negotiating with the social agentsstarting this Friday, and with the political groups the last phase of its reform, with the aim of trying to enable the Council of Ministers to approve the corresponding Royal decree law within the month of March.
As the first lever to obtain income with which to finance pensions, Escrivá has designed a certain decapping of the maximum contribution bases which, according to the initial proposal and probably subject to changes, could mean raising the current monthly amount of pensions by 30%. €4,495.50. His idea is to do it gradually, over 30 years and in addition to the rise derived from inflation. Parallel to this increase in the contribution base, it is proposed to raise the maximum pension (3,059 euros per month at present), although in a smaller proportion.
As a second lever, Social Security is preparing to tax part of the salary that remains above the maximum base and that is currently not listed. To do this, Escrivá proposes applying the aforementioned ‘solidarity surcharge’, it would be temporary. For a gross monthly salary of 7,000 euros, for example, the maximum base (4,495.50 euros, currently) would be taxed by the corresponding social contribution.
The rest, up to 7,000 euros – which currently does not contribute to Social Security – would be taxed by the new ‘solidarity surcharge’, according to EL PERIÓDICO from three different sources familiar with Escrivá’s proposal. There are currently, according to the Executive’s own calculations, around 1.2 million workers throughout Spain who do not contribute for the entirety of their salary.
The third lever to make the public benefit system sustainable includes extending the contribution surcharge of 0.6%, known as the Intergenerational Equity Mechanism (MEI), until the year 2052 (compared to the current ceiling of 2032).
three-way negotiation
There are three levers that, for the most part, fall on the accounts of the companies -and part of the Administration- and that will face the foreseeable Frontal rejection of the CEOE employers. A rejection that will foreseeably manifest this Friday, at the social dialogue table convened by Minister Escrivá to advance in the negotiation of the pension reform. Call announced this Thursday by the minister during his speech at the III Finance Observatory of El Español and Invertia.
For the European Commission, however, these three levers are sufficient argument to begin to trust that the Spanish pension system will be sustainable in the medium and long term. the minister Jose Luis Escriva announced this Thursday that his department “practically” has reached a consensus with the European Commission to complete a reform that guarantees long-term sustainability of the system, as required by Brussels before proceeding to a new disbursement of European funds (for 10,000 million euros). And it is that the progressive retirement of the ‘baby boomers’ will cause Spain to become the third country in the EU that must allocate the most public spending to pay pensions, according to the calculations of the Bank of Spain. Escrivá transmitted that, after the conversations held with Brussels, it is possible to think that the reform designed by his ministry will not cause any cut in the delivery of European money.
After this, the minister hoped to advance now at the social dialogue table and to be able to have his reform ready “in the next few days.” Escrivá pointed out that this Friday he will present to the social agents a “sustainable, reasonable, credible scheme, with the endorsement of all those who matter, which are the powerful independent institutions so that the system is sustainable and compatible with maintaining the purchasing power of pensions “. “I cannot anticipate the elements, but I can say that the reform means the closure of the system, the sustainability of the system at all time horizons”, he added. In his proposal – he anticipated – “we also solved an issue that has caused friction”, alluding to the extension of the calculation period that will take into account the new reality of careersto cover the gaps in the contribution.
In parallel with the conversations held with the European Commission, Escrivá has also made progress in the political dialogue with the parliamentary groups that they should give their support to the reform in the Congress of Deputies, according to sources from the Ministry of Inclusion and Social Security. This same Thursday there have been new political contacts between the ministry and some groups and a meeting of the Commission of the Pact of Toledo, in the Congress of Deputies, next Wednesday.
After achieving the necessary social, European and political consensus, the Government would now be in a position to approve a royal decree-law as soon as possible, if possible within the month of March, to try to ensure that its parliamentary processing does not overlap with the start of the campaign election prior to the May 28 elections.
European funds
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In accordance with the reform calendar committed to by Spain within the Recovery and Resilience Plan, Spain should have completed its third round of Social Security reform before December 31, 2022, having completed three pending milestones: lengthen the period for calculating pensions, raise the maximum contribution bases and present a report with exhaustive calculations that guarantee that all the reforms undertaken since 2021 guarantee the sustainability of the system.
Once these reforms are completed, Spain will be in a position to request the fourth scheduled disbursement of European Next Generation EU funds (the third disbursement has been authorized on February 17). If Brussels considers compliance with the milestones satisfactory, it may authorize the new disbursement, of 10,000 million, in full. If not, it could penalize Spain with a smaller delivery in this fourth disbursement, being able to subtract 2,500 million from the initial amount.