The Bank of Spain calculates that updating pensions with 7% inflation would cost the public accounts some 12,600 million, following the entry into force of the pension reform that involves revaluing pensions in accordance with the Consumer Price Index (CPI).
According to the central bank, taking as a starting point the approximate expenditure on pensions in Spain and an average inflation for the whole year 2022 of 7% (November over November), each point that pensions are raised by the revaluation means 1,800 million to the public accounts. Thus, the revaluation for 2023 would amount to 12.6 billion.
In fact, in 2023 and 2024 the Bank of Spain’s forecasts for the deficit are more unfavorable than its previous forecasts, mainly because pensions have been indexed to inflation and will have a negative impact on the public accounts.
Specifically, in its report on the macroeconomic projections of the Spanish economy published this Tuesday, the body headed by Pablo Hernández de Cos has worsened its estimates of income and expenditure for this year, as the public deficit will remain in 2022 at 5% of GDP, compared to the 4.8% previously estimated. In addition, there are worse prospects also for 2023 and 2023, with rates of 5.2% and 4.7%, respectively, compared to the previous 4% and 3.4%.
The Independent Authority for Fiscal Responsibility (AIReF) has already made a similar calculation and estimates that for each additional point of inflation, pension expenditure will rise by 1,500 million.
AIReF has explained that in the short term, inflation has a direct positive effect on the public deficit because it has an immediate effect on tax collection -in the case of indirect taxes and also on personal income tax-.