How to Solve Spain’s Pension Crisis

It is no secret that Spain has long-entrenched economic problems. These are caused in part by its Bismarckian retirement system. The potential crisis reflects why people across the transatlantic sphere must understand economic policy, tie fiscal principles to Judeo-Christian moral precepts, and appreciate the importance of religious faith to social well-being.

The Spanish pension system is based on Otto von Bismarck’s model: a social security system rooted in redistribution. Spanish citizens have the world’s second-highest life expectancy rate (83 years), just behind Japan, according to the OECD’s “Health at a Glance 2017” report. At the same time, a recent Fundación Mapfre’s report shows that, by 2050, there will be 1.3 Spaniards of working age to support each retired person (provided they all work). As we know, this retirement model has been failing across the globe for decades. European countries such as Sweden had to reform their pension system to combine aspects of redistribution and individual contribution.

The United States has not faced up to its coming reckoning with demographics. However, in the mid-1990s then-President Bill Clinton became interested in the Chilean retirement system developed by José Piñera, the former Secretary of Labor and Social Security during Augusto Pinochet’s dictatorship (and a supporter of the nation’s transition to democracy). That nation’s model features private contributions to pension funds run by private companies. The government provides the full amount of a citizen’s pension only in the case of bankruptcy. Piñera’s model has played a key role in raising investment levels and boosting economic growth.

On the other hand, Spain’s pension system may not be far from systemic failure.  As in the United States politicians have raided the pension system’s reserve fund, created in 1997 by José María Aznar’s center-Right government. This month alone the government withdrew €3.6 million from the fund’s coffers in order to provide an extra payment to recipients before the Christmas season. The fund is being drawn down despite the fact that, in 2011, the left-wing government of José Luis Rodríguez Zapatero raised the retirement age to 67. Still, not one mainstream politician from the People’s Party (PP), Socialist Party (PSOE), Citizens (C), or PODEMOS are asking for deep reforms to the system.

Their only solution so far has been more taxes – something the PP and PSOE agreed to last month. But families and businesses are already suffering the consequences of high taxation. Every Spaniard works 178 days of the year to pay taxes, according to a report from the pro-market think tank Civismo. The tax burden is so high that it is impeding economic growth, and economic growth is the key to lower unemployment and wealth creation. Judging by its temperature on the Heritage Foundation’s annual “heat map,” Spain could be considered one of the European countries closer to the status of tax Hell.

Despite the heat, Spain is feeling the chill of “demographic winter.” According to Eurostat statistics, Spain has the second-lowest fertility rate in the continent (beaten out only by Cyprus). Nevertheless, there is no plan to boost the nation’s fertility rate through tax reform nor a courageous and strong promotion of pro-life and pro-family values. Instead, politicians are trying to respond to the nation’s population woes through immigration policy, including accepting more so-called “refugees.”

Ominously, this unraveling of the nation’s pension system is taking place at the same time as the nation is considering legalizing physician-assisted suicide. Since March, the Spanish Parliament has debated a law creating a right to “dignified death,” a way to normalize an appalling medical practice that attacks human dignity.

Europeans cannot successfully defend liberty through utilitarianism. It is indeed true that there are utilitarian arguments that adopting the Chilean model provides the best solution. This system allows people to retire whenever they decide and eliminates the absolute immorality of those who die young never receiving their contributions. In the U.S. and Spain, the government keeps all taxation; under the Chilean model, a retirement fund would be an individual’s private property. That system may also help ease Spain’s high debt level and stop strangling its citizens with high taxes.

However, we cannot focus only on the pursuit of economic and budgetary stability. Even if successful, such short-term measures do not inspire anyone. They cannot provide a long-term solution. Numerous studies show secular societies have fewer children than those animated by faith. Faithful societies encourage families to care for their elderly relatives. They cherish property rights, including the right to receive one’s full savings upon retirement.

Europeans must understand the importance of tying a reform of the Bismarckian pension system to a coherent philosophy that promotes such values as individual responsibility, fecundity, and respect for human dignity, and a reverence for the role played by religious faith and its moral principles.

Ángel Manuel García Carmona is a student of computer engineering in Spain.


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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