His proposal would save 6,225 million only next year, which could be used to reduce public debt or increase the education budget
MADRID, 17 Oct. (EUROPA PRESS) –
The Foundation for Applied Economics Studies (Fedea) exceptionally proposes that the revaluation of pensions for 2023 not be carried out in a generalized way with the CPI, but that it be graduated according to the amount of benefits, so that pensions the highest rose by around 2.5% and the lowest, less than 800 euros, increased by 11%.
In a paper published this Monday by Fedea experts José Ignacio Conde-Ruiz and Manuel Díaz Mendoza, the entity stresses that, given the current economic situation, the pension revaluation scheme they propose would be “fairer” than the current one for the most vulnerable elderly and for young people and would allow tax savings of 6,225 million euros in 2023 alone.
The authors defend that, under normal conditions, the loss of purchasing power of pensions should be avoided, but in the current context, with an economy that has not yet recovered from the effects of the pandemic and “hit” by the rise in energy prices, consider that the system must establish “escape valves” that allow the revaluation of pensions to be distributed over several years.
Fedea recalls that this gradual recovery from the loss of purchasing power “workers are also being asked to avoid the second-round effects of inflation.” “Consequently, retirees with higher pensions should be required”, point out the authors, who recall that the average inflation of 2022, which will be around 8.5%, will be something “exceptional” and an unprecedented phenomenon in Spain since 1983.
Thus, they propose, exceptionally, to replace the generalized revaluation of all pensions with the CPI for a rise based on the amount of the pension.
Specifically, they propose that the minimum pensions, less than 800 euros per month, rise by 11%, above inflation; that pensions with amounts between 800 and 1,400 euros per month are gradually revalued from 11% to 2.5%, and that pensions that exceed 1,400 euros per month increase by 2.5%, in line with what is established for public employees.
In his opinion, this proposal “is not only more efficient, but fairer” for several reasons. In the first place, Fedea understands that it would be “more supportive” with the most vulnerable pensioners, since all pensioners with a payroll of less than 1,000 euros per month, which represent more than 52% of the total recipients, would see their pension increased by a higher amount to 8.5% planned by the Government. “In this way, scarce fiscal resources would be concentrated on the most needy pensioners,” the authors defend.
In addition, they consider “reasonable” that the highest pensions participate in the possible income pact that the Government wants to reach with the social agents.
“The maximum pension (39,500 euros per year) exceeds the average salary in Spain by almost 15,000 euros (25,125 euros) and by more than 5,000 euros the average salary of public employees (34,608 euros). A generalized and automatic rise in all pensions in such a complicated economic situation, it is less progressive,” says Fedea.
Thus, a general increase of 8.5% will mean an increase of 860 euros per year for those who receive a minimum pension, but a much higher increase, of 3,350 euros, for those who receive the maximum pension. “That is, with the general increase, those who have the maximum pension receive practically four times more than those who have the minimum pension”, they expose.
They also allege that raising the maximum pensions by 8.5% makes it necessary to raise the maximum contribution bases by 8.5%, a measure that they see as clearly contrary to the income agreement as it involves raising the salary cost of many qualified workers, “what which will have a pernicious effect on inflation.
At the same time, Fedea points out that the “asymmetry” of the new mechanism for revaluing pensions, “which prevents lowering pensions if prices fall”, is an additional reason for caution when proposing generalized and automatic increases of 8, 5%. “It is not ruled out that, after the resolution of the war, energy prices will fall, and with them, we will experience price drops that, given the asymmetry of the revaluation system, will not be reflected in pensions,” he explains.
Fedea defends that its proposal represents a fiscal saving of 6,225 million in 2023, although it would be a “much higher” figure in the medium term given that pension increases are consolidated over time.
This saving, adds the entity, will allow a more rational use of resources and their use in measures that benefit young people, such as reducing public debt or improving education. “It can be used to reduce the level of public debt, which is nothing more than unpaid bills that have been passed on to the future, that is, to young people,” he points out.
Fedea maintains that, if the increase in interest rates registered in 2022 is maintained in the coming years, interest expense will increase by more than 20,000 million in 2025, compared to that registered at the end of 2021, “so it must be a priority to reduce at a greater speed the public deficit”.
“This is a higher priority, if possible, given that the Treasury alone, with the public debt that it already has issued today, will have to refinance more than 500,000 million euros in the next four years (2023-2026),” he says.
