The voracity and deception of the rise in prices

The Government, with the support of the trade union centrals and the opposition of the CEOE, has approved a 0.6% rise in social security contributions. In this way, it is intended to collect the equivalent of 0.2% per year of GDP that will be contributed to the Pension Reserve Fund. Within a decade, between 40 and 50,000 million euros will have accumulated in it. These will cover the gap between the income and the expenses derived from the transition to retirement of the baby boomers.

This approach is business as usual: raise the taxation borne by the long-suffering national taxpayers. The tax voracity of the social-communist coalition is insatiable. Like bad hunters, they shoot at anything that moves, and whoever does it knows the rules of the hunt perfectly.

To begin with, Social Security contributions are always a labor tax by making the hiring of labor more expensive. At the same time, they are a drag on the competitiveness of companies if they are superior to those existing in other economic areas.

In Spain, the part of contributions paid by employers is 29.9% of gross salary compared to 16.9% in the OECD average and 22.1% in the EU. For their part, employees contribute 6.4% of their gross salary for this concept, compared to 10% in the OECD average. In fact, Spain is the seventh country of the 36 integrated into that organization where the non-wage component of the labor cost is higher.

The tax voracity of the social-communist coalition is insatiable. Like bad hunters, they shoot anything that moves

In this context, increasing business contributions to Social Security will have a negative impact on employment and on the competitive position of companies.

Perhaps this effect would be little or less relevant in a normal or expansion scenario, but it is in an environment of deceleration of the rebound registered by the GDP after the pandemic, with a high unemployment rate and with an economic-financial position of the companies that are not buoyant and with uncertain expectations.

add to shock of supply caused by the pandemic and by the brutal escalation of electricity prices an increase in fiscal costs is reckless. If it is taken into account that, ceteris paribus, a rise of one point in social contributions implies a drop in the demand for employment of 0.37%, a rise of 0.6% would mean 0.2% fewer jobs.

The calculation of the revenue expected by the Government, 0.2% of GDP each year between 2023 and 2033, has therefore been carried out under a questionable hypothesis: the rise in contributions does not affect the creation of employment or the economic activity. Now, even assuming that this optimistic government forecast was correct and using the same assumptions of the Government, accumulating 40 or 50,000 million euros in the Reserve Fund is a prodigious exercise of voluntarism.

The ability of upright bureaucrats to emulate the achievements of Warren Buffett requires a true exercise of Faith.

To achieve this goal, the money deposited in that fund should have an annual return of between 6 and 7% during the ten years following the entry into force of the measure. It takes an enormous effort of imagination to think of what the honest bureaucrats of the Ministry of Emigration, etc., can come up with to achieve these results. His ability to emulate the achievements of Warren Buffet either Larry Finck It requires a true exercise of Faith. But the story does not end there…

The inexorable trend of structural spending on pensions is to grow above income, propelled by a growing dependency ratio until 2050, by a high replacement rate between the benefit and the salary received before retirement, and by higher pensions.

This upward spending race has been exacerbated by the indexation of the revaluation of pensions to the CPI that is not offset by any effective initiative to stabilize its financial position and make it sustainable. The reforms of the retirement coverage system promoted by this Government, like all Spanish economic policy, is a flight forward. The ‘Ponzi Pyramid’ hoax is getting harder and harder to sustain.

The Minister of Foreign Affairs, European Union and Cooperation, José Manuel Albares.


Leave a Reply

Your email address will not be published.