Spain’s government will cut its pension-system deficit by the minimum recommended by the expert panel it appointed to provide guidance on the overhaul, according to a draft law sent to parliament.
The government will tighten the shortfall by 25 percent per year, compared with the 25 percent to 33 percent range recommended by the task force on June 7, according to the bill sent to parliament on Sept. 27 and seen by Bloomberg News. It will start those cuts from 2019, compared with the experts’ recommendation of 2014 to 2019.
A Labor Ministry spokeswoman, who asked not to be named in line with policy, said the bill will be discussed in parliament tomorrow. She declined to comment further.
Prime Minister Mariano Rajoy, facing a slump in popularity, is raiding Spain’s welfare-reserve fund for the second year to maintain pension payments even as the nation’s 26 percent jobless rate undermines the social-security system’s finances. The government is tightening pension rules to comply with recommendations from the European Union, which is overseeing the country’s bank-bailout program and trying to steer its public finances back to health.
Spain’s total public deficit was 6.8 percent of gross domestic product last year, excluding the cost of bailing out banks. The national social-security system, which includes the pension system, had a deficit of 1 percent of GDP last year, or 10 billion euros ($13.5 billion). The European Commission has given Spain until 2016 to reduce the total deficit to below 3 percent of GDP.
While the so-called sustainability factor doesn’t come into force until 2019, rules on how much pensions can rise take effect next year. The draft sets a range for possible pension adjustments with a floor of 0.25 percent and an upper limit 0.25 percentage points above the previous year’s inflation rate.
Spain will spend 127 billion euros, or about 12 percent of its GDP, on pensions next year, according to budget details released today.
The pensions bill will be discussed by lawmakers on the cross-party pension committee and approved by parliament, where the ruling People’s Party has a majority.