Harsh recommendations from the OECD to Spain on pensions and tax matters. The chapter relating to benefits is one of the hardest. The organization, in its latest study on Spain published this Wednesday, considers the reform approved in the previous legislature insufficient and points out that “new measures may be needed.” First point of attention: “The reference period for calculating pension rights” should be extended “probably for at least 40 years”, from the current 25 years. The objective, according to the organization, is to “guarantee financial sustainability.” And he warns: “If pension deficits continue to be covered by general revenues, the maintenance of pension benefits will come at the expense of other priorities and to the detriment of the already disadvantaged younger generation.”
Furthermore, also in the chapter related to pensions, it demands that, instead of imposing additional contributions to the generation of working assets, "the Government should lengthen working life by linking the legal retirement age” to life expectancy. The OECD also calls for toughening the requirements to access a pension; currently, with 15 years of contributions, half is received and the full amount is received with 37 years (in the future it will be 38.5 years).
The OECD recommends to Spain a battery of tax measures to increase income by 6,800 million (0.5% of GDP) while asking not to extend the tax cuts on energy and the VAT bonus on basic foods, measures which expire on December 31. In its latest study on Spain, the organization considers that the situation of the national economy is robust and has even improved its growth to 2.5% for this year. However, it has decided to lower the evolution to 1.5% in 2024.
In fiscal matters, the OECD considers that the future Government has room for an in-depth reform that increases income given that Spain still maintains a ratio in relation to GDP lower than the EU average. Specifically, the international organization focuses on the margin it would make to increase VAT, especially the reduced one in hotels and restaurants.
Reduced VAT rates “disproportionately benefit higher-income households,” notes the think tank. It even proposes to the future Executive to move towards a single and uniform type in the coming years.
The OECD also points out that “Spain has considerable room to make the tax system more environmentally friendly.” The organization explains that its income is low compared to other countries. Emphasizes diesel rebates, zero rates for fossil fuels used off-road (such as in commercial shipping, aviation and rail transport) and especially low rates for fossil fuels used in industry (in particular, zero in the fishing sector).
“Spain should take advantage of its solid economic growth to boost productivity and help young people develop their potential,” said the chief economist of the OECD, Clare Lombardelli, when presenting the study in Madrid together with the Secretary of State for the Economy, Gonzalo García. Andrew. "Rebuilding fiscal space, improving education and intensifying efforts to address environmental challenges will be key to driving long-term sustainable growth and prosperity," she added.
The organization also notes in its report that it would be possible to mobilize greater tax revenue by imposing higher excise taxes on alcohol and tobacco.
In the area of tax cuts, the OECD recommends lowering capital and income taxes for low-income households with children.
Regarding the minimum interprofessional wage (SMI), the OECD proposes moderating future increases so as not to harm youth employment. He also advocates increasing the amount and scope of the minimum vital income (MIV) and warns against the negative effect that, in his opinion, the application of caps on housing rental prices in stressed areas will cause.
The OECD predicts that the public deficit will close this year at 3.8% of GDP to drop to 3.5% next year, while the debt will exceed 109% in 2023 and reach 110% in 2024. And it concludes: “Given the poor demographic outlook and the resulting age-related spending pressures, as well as the need to spend more on the green transition, it would seem prudent to accelerate the pace of fiscal consolidation to restore pre-Covid debt levels in a few years".
Regarding the sustainability of pensions, the OECD considers it possible that new measures are needed, among which it proposes linking the legal retirement age to life expectancy, but also extending the calculation period to access a pension. In this sense, it suggests that, instead of imposing additional contributions on the generation of active workers, the Government should lengthen working life by linking the legal retirement age to life expectancy at the time of retirement.
