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Essay 1: Spain, Pensions and No-one wanting to give up anything:

septiembre 9, 2013

One of the biggest problems in today’s global economy seems to be the amount of debt that most countries have in relation to their nominal yearly GDP. The number is in most cases out of scale, reaching sometimes the 100% ratio, and the worst thing is that this situation has tended to become normalized. If Italy wanted to eliminate its public national debt every citizen would need to work for free, and the benefits of all the Italian companies would have to go only to repay the debt for a year and three months, approximately [1]. It isn’t necessary to mention the fact that no country is willing to accept such sacrifice.

Although having a huge debt is not necessarily a great problem, since debt is always a necessary component to sustain a steady growth, many countries, like Spain, continue to ask for more money and add more debt each year because they are not capable, apparently, to make the State economically and financially profitable. And it is this fact the one that causes a noticeable preoccupation in the different governments around the world.

Everyone knows that for the accounts to be balanced, governments must either increase revenues, which are gained primarily by taxes, or lower costs, cut the spending. Spain is a case where the first option cannot be done without serious negative consequences as taxes have already been increased highly amidst of an important economic crisis. The other path goes by adjusting the deficit by, as said, cutting the spending. Spain has done this pretty effectively, making it go from a yearly 9,4% debt increase in late 2011 to a 4,4% now [2] [3], and we still have to count to potential earnings that will show up in the future once the economy has a positive growth again, unemployment lowers and taxes are paid more. The growth of the country will contribute in a capital way to balance naturally the Spanish balance sheet.

Many people say and have said, especially in the middle of this last crisis, that the welfare state is bound to disappear, and social policies, like healthcare and education, along with the state itself, must and inevitably will fall and adapt to new darker times. Those words were for the most part an act of demagogy. Education and healthcare represented to the government budget of 2012 a 0,7% and 1,3% of the total spending, numbers extremely low. The total social spending of the state sums up to a 19% of the total budget for that year, if we don’t sum up something, so it shouldn’t be an issue, right?

But there is a problem, and a very big one, literally. The big spending of the state are pensions. They represent all alone a whopping 37% of the total budget. The money taken to pay the pensions comes theoretically from the contribution to the social security system that Spain has. But in practice there is no special cash, there is no extra ‘reservoir’ that goes to the pensions. The government takes the money used for pensions from the taxes paid the last year. Then again, the immense amount of money the state has to pay each month to the pension system wouldn’t be necessarily bad in a sane and growing society. After all, theoretically, the money the state has to pay has already been received.

What makes the problem important is that, as we know, the Spanish society is going through a decadent demographic slope. In 2011 the ratio of children born by woman laid in the very worrying 1,36 [5]. This means that the population is decreasing, and the amount of people supporting the Social Security system is smaller and smaller and the elder people who depend on their pensions, bigger. A small glance at the Spanish demographic pyramid can be enough to make realize people this great problem [6].

The pensions problem seems to be the only challenge to the continuation of the welfare state as we know it, but not for being the only one it’s a small one. The solutions to solve it can only be radical and controversial. The first one I propose is to rise the limit age of retirement. It has traditionally been at the age of 65 here, and was recently lifted up to 67. But it was always at this age because it nearly touched the mortality rate. But a few decades later the mortality rate have risen up ten or fifteen years and the pensions haven’t. Pensions must rise up the age of 70, at least, as a base, with a look case per case in the healthcare system to not to put everyone at the same level.

Secondly, the amount of the pension given each month must not only be calculated by the amount of money given to the Social Security system throughout life. The amount of children had must also be a factor taken into consideration (except with people with special medical conditions). As a citizen, everyone is responsible for breeding the next generation and the people who have had many children and thus made a lot of sacrifices through a lot of time shouldn’t be punished with a lower pension because others didn’t have enough children and so there wasn’t a sufficient tax base to sustain taxes.

Sources:

[1] http://en.wikipedia.org/wiki/Economy_of_Italy

[2] http://es.wikipedia.org/wiki/Déficit_público

[3] http://www.elmundo.es/elmundo/2013/08/30/economia/1377869424.html

[4] http://www.20minutos.es/graficos/presupuestos-generales-del-estado-por-politicas-de-gasto-13/0/

[5]http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_dyn_tfrt_in&hl=es&dl=es&idim=country:ESP:ITA:FRA

[6] http://lascifras.blogspot.com.es/2012/04/piramide-de-poblacion-en-la-espana-de.html

Eduardo Collin Hernández

1º ELG

07-09-2013

Essay 1. Political Dialogues. Sustainable Health & Social Policies

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One Comment
  1. #Essay1Comment
    A well-structured essay with a successful order. You gave a brief and very figurative introduction outlining the major problems worldwide and, in detail, in Spain. Focusing on pension expenditure of the Spanish government you correctly analyzed the current situation, especially the inversion of the age pyramid, came to your own conclusion and developed two solutions that could help alleviate unnecessary spending, hence promoting a more sustainable economy. The fourth paragraph I must admit is a little confusing, maybe you could try reorganizing it to convey your thesis more adequately.
    While reading your analysis of Spanish pensions, although you focus on this topic, I get the impression that you might not be taking the big picture into consideration. There are a substantial amount of problems in the Spanish economy and welfare system that must be solved. You mention the inverted age pyramid, but it would have been interesting to develop the topic further.
    Concerning your solutions, I completely agree that these must be radical, however I disagree with the solutions you present. How can we raise the limit age of retirement even higher than it is? Aside of the physical effort, these people have a right to retire after working for so many years. Also think of the bureaucratic consequences your proposition to look case by case implies, I believe such an incentive is not viable and would cause more costs, adding further to the problem. The second solution you present seems understandable, but I believe that a more feasible solution would be to imply policies that promote and support families with children (for example: family benefits would balance the unjust pensions), at the same time reverting the current trend of an inverting age pyramid and in the long run solve the pension problem automatically.
    To conclude, a good, analytic, essay that adequately describes the current economic situation in Spain and gives the reader facts to think about. Try improving some sentences, and the structure of the fourth paragraph. Although we disagree on the solutions to the problems you describe, I am very impressed that you excogitated them on your own. Keep up the good work!

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