Yesterday, the Government sent to Brussels the 2022-2025 Stability Program, a sort of map of Spain’s economic policy for the coming years. In the 151-page text, there are only two references to the almost three million public employees. The first to remember that this year their salary has been raised by 2%. The second mention has more substance: “As of 2023 and following, an increase in the remuneration of public employees is expected, as well as that of pensions, in line with the evolution of prices for the entire period contemplated.”
This implies that public employees will only have their salaries raised with the inflation forecast for next year and not with the real inflation that is taking place this year. In short, public sector workers will lose all the difference between 2% (this year’s salary increase) and the inflation that actually occurs in 2022. In other words, the Government does not guarantee the purchasing power of public employees just in the year in which inflation is runaway.
Officials this year have received as an update the inflation forecast that the Executive had at the end of last year, when it approved the 2022 Budgets. This was 2%. However, those predictions have remained on paper. The year-on-year CPI closed April at 8.4%, as published this week by the INE. Organizations such as the Bank of Spain speak of an average annual inflation of 7%. And in the press conference this Friday, the Executive admitted that the inflation of the year could be around 6%. So the loss of purchasing power could be between four and five points.
A rise of about 2% in 2023
On the other hand, already in 2023, the Executive anticipates that prices will grow by around 2.2%, as stated in the text. The economic vice president, Nadia Calviño, assured yesterday in the presentation of the plan that prices will stabilize from the second half of the year, in part due to the measures to reduce the price of electricity. It will also help this reduction to reach a few months in which it is no longer compared to previous times when prices were falling, this is what economists call base effects.
In light of the plan, in 2023 the update would be around 2% and there will be no compensation for the sharp price increases experienced this year, according to government sources. Public employees would therefore participate in the salary containment that the Government is also demanding from the unions and employers.
He knows in depth all the sides of the coin.
The governor of the Bank of Spain, Pablo Hernández de Cos, has defended the need for an income pact by which workers and companies share the loss caused by inflation. Ultimately, it is a transfer of income to the energy-producing countries and it would be a mistake not to assume it. If all the effort were borne by wage earners, demand would be further depressed. If all the burden was borne by the companies, many could close or lose competitiveness.
For this reason, De Cos defends that wage increases should be made over several years and excluding energy prices from the references. For their part, companies would be forced to contain margins. If everyone assumes that loss in the short term, it would translate into a gain in the medium and long term.
Extend the computation of pension contributions
Pensioners will enjoy a revaluation linked to the CPI that guarantees their purchasing power. Precisely, the Government informs Brussels that it will address pending aspects of the Social Security reform such as the extension of the period for calculating the retirement pension, a measure that could involve an adjustment of the initial benefit.
The initiative is not really a novelty, since it was already included in the Recovery Plan with the reforms to which Spain committed itself in exchange for European funds. That document avoided talking about the rise to 35 years that was initially considered in other official documents. But it is recognized that it may entail an adjustment and that, therefore, it must be compensated: “This measure increases the contributory nature of the system, but it can have negative effects, which is why it is important to complement it with measures that modulate its effects, such as the possibility of choosing years or the improvement of the contribution gap integration system”, the document stated.
In addition, the Government clarifies that this extension of the calculation period that is being discussed with the social agents will only apply to people who have been fired at the end of their working life or who have had gaps in their careers. The idea, say these government sources, is that these people are not penalized. “The objective is to strengthen the contributory nature of the pension system and make it more equitable,” states the document sent to Brussels.
This is one of the legislative changes that are included in Social Security matters in the National Reform Plan. It also includes the modification of the self-employed contribution system and the increase in the maximum contribution base.
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