Weaknesses and new rights

Pablo José Martínez Osés
Plataforma 2015 y más

In Spain, per capita social expenditure is below the average for the 15 EU member countries before the 2004 expansion (EU-15), and the government has to face the challenge of closing this gap. Since 1998 the country has accumulated a social security surplus, which is a compelling argument against proposals to privatize social insurance and thus divert resources from the public treasury. In the social sphere, new rights such as those of people who are dependent on care have been recognized, but it will be difficult to implement measures to satisfy these new demands.

One of the basic pillars of Spanish social security is that it is universal, and provides access to contributory and non-contributory pensions for all. The system is based on compulsory contributions to a common fund, and benefits are paid in accordance with different categories based on labour and personal circumstances. In 1995 the government signed the Toledo Agreement (still in force), which established the separation of funding sources; this means that contributory pensions are financed from contributions and non-contributory pensions from the general state budget.

However, comparisons with the figures for the 15 members of the European Union before the 2004 enlargement of the bloc (EU-15) reveal certain weaknesses in this social protection system. Spain is still enjoying greater economic growth than the European mean, and average wealth as income per capita stands at 91% of the average for the EU-15.[1] But social spending per capita is only 62% of the average for these 15 countries. According to EUROSTAT (2006), in 2003 Spain allocated 19.7% of its GDP to social protection, while the figure for the EU-15 group was 28.3 %. Expenditure for the most vulnerable sectors (the elderly, the disabled and the very poor) comes to only 9.8 % of GDP, which means Spain is second to last in the EU-15 ranking. In contrast, Sweden allocates 17.6% to this sector, and Germany 14.7%.

The amounts that are actually paid in social security pensions follow the same pattern. The average contributory pension in Spain comes to only 68% of the EU-15 figure, and non-contributory pensions stand at only -46% of the average for the EU-15.[2]


The debate about the viability of the social security system

There is concern in Spain, as there is in the rest of Europe, about how financially viable the pension system will be in the decades to come, given that the population in general is ageing. The so-called demographic dependency ratio[3] could rise with the increase in life expectancy, and this would mean that contributions from the active population would be insufficient to cover the costs of the system. The European Commission has issued statements to this effect,[4] warning of the danger of the system collapsing, and it is coordinating an exchange of information among EU countries about reforms to European pension systems.

But what is involved here goes beyond just bringing the amounts paid and the coverage provided in the Spanish system up to the levels of the European average. Another related aspect of the situation is that private business sectors close to the spheres of power (Sáez and Taguas, 2007[5])  are promoting the idea that pension reform should involve the privatization of social insurance. The proposal is to replace the present payments system with an individual capitalization system in which each working person would subscribe on an individual basis to a private pension plan. In fact, private pension plans that are voluntary and complementary to the universal public system – and that involve tax incentives – are already in operation.

These proposals would mean gradually extending privatization, and the suggestion is that public protection should be reduced to a common minimum while two other systems (one compulsory and the other voluntary) involving individual capitalization with private organizations would be set up. Besides this, there is also a move to raise the retirement age from 65 -to 70. These changes would open the door for banking organizations, savings funds and life insurance companies to get their hands on this enormous goldmine of resources that is currently administered by the public treasury, and the usual arguments about greater profitability and efficiency have been used to support this idea (Navarro, 2007).[6] However, these proposals run counter to the recommendations of the above-mentioned Toledo Agreement, and they are not accepted by the present government or stakeholders.

A bill was brought before parliament recently proposing that the reserve fund of the pension system (which is fed with surpluses from the social security fund) be quoted on the stock exchange and be administered by private financial organizations, in line with principles of security, profitability and social, economic and environmental responsibility.

These proposals threaten to undermine a mechanism that helps to guarantee social rights and foster the redistribution of income, and they ought to be duly examined and responded to. In spite of the frequent predictions that the pension system is headed for collapse, the fact is that since 1998, the Spanish social security system has actually accumulated a surplus. There are various reasons for this, including a massive influx of women and immigrants into the labour market, which has the capacity to absorb even more. If women’s participation in the Spanish economy was at the level of the European average, nearly three million more women would join the labour market as new contributors. It follows that if the government invested in programmes to promote the labour insertion of women and immigrants, this would serve to consolidate the present pension system.

The argument about increased profitability is clearly questionable, since numerous studies have shown that the costs of running private individual capitalization systems are much higher than those of public social security, and what is more, the cost of a changeover from one system to the other could amount to as much as 10% of GDP. 

In response to this pressure for privatization, even if we accept the prediction that the pension system will eventually collapse, there are other alternative ways to ensure that it will remain viable in the future. The tax burden in Spain (the percentage of taxes over GDP) is still among the lowest in the EU-15 countries, so income from this source could be increased – preferably in the form of progressively incremented income taxes, since this contributes to the redistribution of wealth. Another measure could be to promote a lengthening of active labour life beyond the age of 65 with the option of flexible timetables for those who wish to continue working.


New rights, new challenges

New laws have been enacted in Spain recently to permit same-sex marriages and to effectively ensure equality between women and men; these broaden the recognition of rights and incorporate measures for ‘positive discrimination’. Meanwhile, in November 2006, Congress passed the Law to Promote Personal Autonomy and Care for Persons in a Situation of Dependency (the Dependency Law) which covers care for the elderly and people living with serious disabilities who find it difficult to cope for themselves in everyday situations. This sets up a scale for evaluating the seriousness of cases of dependency so that support can be provided. Thus, with the Dependency Law, Spain is recognizing a new right that is universal, subjective and completely effective: the right of people who cannot look after themselves to be cared for by the state. In addition, remuneration will be paid for services that up to now have usually been ‘invisible’, tasks involving family care that fall mainly to women   (and also immigrants) and which are not given a valuation in the sphere of work.   This law has been called the fourth pillar of the welfare state, but in fact it only amounts to a part of that pillar, which also consists of other social services.

The Dependency Law is important because it recognizes a right for 1,125,000 people (IMSERSO, 2004), and this figure will undoubtedly rise in the years ahead. Implementing the law means a whole series of big challenges will have to be met, particularly since social and health care services are very decentralized. This will involve not only economic transfers, some of which have already been enacted, but also mechanisms for interregional coordination and support, which have been poorly developed up until now.

The law will be implemented progressively, beginning in 2007, until the entire dependent population is covered in 2015. This will call for budget allocations that will amount to more than EUR 12 billion (USD 16.34 billion) by the end of the eight-year cycle, which is slightly more than 1% of GDP. Successful implementation of this commitment will require far-reaching political and regional agreement.

The new law might expose the fact that, in Spain, there is a serious lack of infrastructure adapted to the needs of this population sector, and unfortunately there is no commitment in the offing to make this kind of investment.


Cooperation for development:   pending consolidation

In 2006 Spanish official development assistance (ODA) continued to increase, and efforts to gear aid to the fight against poverty continued. In addition, at the end of the year the Foreign Debt Law was enacted, which linked some elements of debt management to the fight against poverty. This law ought to be applied promptly to consolidate its provisions, mainly those that have to do with modifying the mechanisms that generate foreign debt, namely the Development Assistance Fund and the Spanish Export Credit Insurance Company (CESCE).

The government has also put into operation and strengthened new instruments in line with the recommendations of the 2005 Paris Declaration of the Organization for Economic Cooperation and Development (OECD). The initiatives to convert debt into development projects and direct support for national budgets in countries that receive aid should be intensified and extended to more countries,   and greater social control and participation in how these budgets are oriented and executed should be promoted. These kinds of measures can make a direct contribution to much-needed investment in basic social services, which is something governments in developing countries must do if they are to progress towards the Millennium Development Goals set in 2000.

It is less than a year since important legislation for Spanish development assistance was concluded, and action must be taken to promote some basic measures so that the trends that were initiated should not be merely transitory. It has become urgently necessary to impose regulations (which people have been demanding for some time) to sever the links between economic and commercial interests and Spanish foreign assistance, and to thoroughly overhaul the system through which Spanish cooperation is managed (the Spanish International Cooperation Agency). Almost the only step taken in this reform so far has been to announce it, and there will have to be a commitment from various ministerial departments to inaugurate structures for political and strategic guidance that is well prepared and coherently coordinated, so as to achieve solid cooperation. The challenge is to consolidate a new dimension of cooperation and executive action on the political stage. In this reform Spain is seeking to permanently consolidate what have been isolated innovations up to now.

Plataforma 2015 y más unites the efforts of 14 Spanish non-governmental development organizations (NGDOs) working to raise awareness and promote change in international policies. It is a member of the Spanish Social Watch coalition.