Author: José A. Nieto Solís Professor of Applied Economy, University Complutense of Madrid.

Transcription

1 1 Title: Spain, the OECD, and the Debate on the Welfare State. Author: José A. Nieto Solís Professor of Applied Economy, University Complutense of Madrid. Abstract: This Paper raises three arguments. First, the welfare state is not responsible for the crisis and its effects on fiscal deficits and unemployment levels; on the contrary, it is a collective investment financed by social contributions, and it can be sustainable. Second, the reduction of public deficits cannot be based on cutbacks in social policies; it is necessary that taxes on capital contribute largely to fiscal balance and well-being. Third, if analysts and citizens could better perceive the incentives and costs of public policies, the State s actions would gain in efficiency, stability, equity, and stimuli for economic growth. These arguments are developed by way of three perspectives: (understanding) the welfare state as a public expenditure, as a framework of social policies, and as a sustainable common investment. Annexes to the Paper provide statistical data on Spain where cutbacks in social policies are being proposed without adequately assessing the sustainability of the welfare state, as well as data comparisons with other European countries of the OECD. In conclusion, by opposition to the neo-liberal paradigm and its insistence on reducing the size of the State, academic debates should focus on theoretical, methodological, and empirical aspects that would aid to analyze more rigorously the various effects of public policies. Key words: welfare state, fiscal deficits and social cutbacks, public policies in Spain and the OECD. 1. Introduction* More and more, ideological approaches seem to condition theoretical and empirical analyses of well-being, at least in the European Union (EU). Nowadays, ignoring the recent history of Europe, and without assessing the future impact of cutbacks in social policies, the debate appear to focus on questions of quantity rather than quality: more or fewer actions by the welfare state, greater or lesser budgetary adjustment, yes or no to social policies in the face of supposed market efficiency. In this context, it would be advisable to proceed with more rigor, taking into account each initiative s individual and collective implications, its costs and benefits, its opportunities and challenges, as well as its global and long-term ramifications. Analysis of welfare state policies should not be eroded by the influence of ideological prejudices, nor by the use of methodological procedures supported exclusively by the consideration of statistical data, quantitative variables, and international comparisons. An issue with so many facets as the welfare state can not be properly studied via mere short-term statistical analyses based on its apparent temporary or comparative situation.

2 2 The welfare state is a relatively recent phenomenon: although its origins can be found in earlier eras, it became entrenched following the Second War World as a sort of social contract in countries with higher levels of development, in concurrence with a long period of economic growth and expansion of the global economy. Nevertheless, the welfare state now seems to have passed its peak. Many experts refer even to its demise, as a result of the current crisis, high unemployment levels, the lack of growth, globalization effects, the need to streamline Public Sectors, and the priority of reducing fiscal deficits. In addition, predominant approaches advocated by the main international organizations including the OECD do not help to clarify the debate around the need for sustainability of the welfare state versus the implementation of fiscal cuts and social policy adjustments. Unfortunately, and paradoxically, that lack of substantive debate seems to be particularly true in the EU. In fact, public policies are losing weight in the EU countries, while the neo-liberal paradigm emphasises its drive to reduce the size of the State as the only strategy for facing the depth and persistence of this crisis. This Paper presents, in summary form, three approaches that highlight the welfare state as a public expenditure, as a framework of social policies, and as a sustainable common investment. My initial objective is to re-focus the debate, as a first step towards adopting methodological procedures able to improve the analytical rigor of academic and political analyses. With this purpose, three main arguments are raised within each of the following epigraphs. First, the welfare state is not responsible for the crisis, fiscal deficits, or unemployment levels; on the contrary: it is a collective investment financed by social contributions, and it can be sustainable. Second, the reduction of public deficits cannot be based on cuts in social policies; it is necessary that revenues from taxes on capital incomes contribute largely to fiscal balance and well-being. Third, if analysts and citizens could more clearly perceive the incentives and costs of public policies, governmental actions would gain in efficiency, stability, equity, and growth stimuli for economic growth. 2. The Welfare State as Public Expending According to Heckman (2008: 3, 22, 23): The relevant issue is not whether Europe should adopt the Anglo-Saxon model, or whether the Anglo-Saxons should adopt the European model. Rather, it is which features of the welfare state reduce inequality and provide insurance against uncertainty in an efficient way A principle argument in support of welfare states is that they reduce inequality and promote social inclusion. In practice, the welfare state often excludes people, creates inequality, and reduces competitiveness. The incentives in place often retard immigrant assimilation and reduce inclusion... Incentives that protect the status quo reduce mobility over the life cycle. The rigidities of the welfare state raise lifetime inequality... The key to a successful welfare state lies in devising proper incentives to encourage actors at all levels of the economic system to respond to the new opportunities. In principle, a welfare state can provide the proper incentives for productivity and at the same

3 3 time afford a measure of security and dignity for its citizens. But it has to respect incentives. The loss of economic competitiveness and the exclusion of a portion of society from the benefits of the welfare state are two problems to be avoided. Often, incentives arising from social policies are not perceived, are allocated inefficiently, or simply do not work. However, it is not appropriate to generalize: there are various models of welfare states, the term is conceptually too broad, and the instruments employed to measure it can be inaccurate. In this situation, there arise at least two analytical simplifications, more ideological than empirical, that are incorrect and cloud the debate. The first is that the welfare state is essentially a public expense that generates public deficits and that could conceivably be dismantled, because it is less efficient than other alternative policies. The second is that the expenses of the welfare state reduce competitiveness, economic growth, and job creation, insofar as they distort the allocation of resources and the right functioning of markets. Taking into account the six major OECD countries (Australia, Canada, Germany, Sweden, the United Kingdom, and the United States) during the second half of the 20th century, Shaikh (2003: 531) has provided data showing the fallacy of the above statements (and approaches) against welfare state policies; he concludes: My central finding is that social benefit expenditures were financed out of the taxes paid by recipients of these very expenditures: in other words, by and large, social welfare expenditures were self-financed, and could not have been a source of fiscal deficits or a drag on growth. To this point, it is convenient to remember that there are well-known arguments for and against social policies, as well as different opinions on its impacts on fiscal equilibrium and economic growth. Nevertheless, much of these arguments are usually connected by the preconceived but not proven thesis that State s policies are necessarily less efficient than free market actions. Those simplifications are based on a very narrow view of the functions of the State, which not only are oriented to improve economic efficiency (as important as it is that objective), but also to promote equity and to foster the stability of economic, social and political systems. For this reason, in recent decades, most developed nations, including Spain (Nieto 2011), have strengthened social policies, rejecting the idea that public expenses are a setback. However, this thesis has been reborn nowadays with an almost obsessive zeal in many OECD countries, in particular in those under the fiscal discipline advocated by the EU. 3. The Welfare State as Social Policies Although the efficiency of public expense could be improved in many circumstances, as when waste and corruption are clearly present, the answer to current fiscal crisis cannot consist of applying indiscriminate cuts in order to curb fiscal deficits. Firstly, because such an approach ignores the role of public expenses in favour of macroeconomic stabilisation, as well as their function in offering equal opportunities to all citizens. Secondly, in the long-term perspective, budget balances do not depend on fiscal expenses alone, but also

4 4 on tax revenues, which can hardly increase without sufficient stimuli of economic growth and employment. In addition to austerity, sound public finances require important fiscal adjustment oriented toward increasing public revenues, particularly those coming from taxes on capital, since no one seems to disagree with the basic principle that he who has more should pay more (paradoxically, taxes on labour are proportionally higher than fiscal burden on capital incomes in many countries). In this sense, we must bear in mind that States cannot solely promote their function of supporting capital accumulation; they must also meet standards of social legitimacy vis-à-vis the citizenry as a whole. Both functions (accumulation and legitimacy) are required for the proper functioning of economic and social systems (at least in OECD countries, as we now perceive them). On these premises, Western welfare states have been built with the aim of providing a range of policies of varying nature and social impact (Mulas- Granados 2010) and that can be classified into several categories. For instance: a) Labour market and unemployment policies; b) Social Security and pension expenses; c) Dependency and social exclusion actions; d) Health care and medical and pharmaceutical expenses; e) Education, training, and research policies; f) Transfers related with other internal and external policies and actions. Obviously, the analysis of these mentioned domains becomes more complex when public policies are conducted through a context of regional decentralization, as the case in Spain (Gallego 2003). So, it is advisable to limit social policies to a more functional classification in: A) Universal services: educational policies and health policies. B) Social inclusion: housing policies and active employment policies; C) Actions against poverty and exclusion, including social services and minimum insertion income. Any of the above proposed categories conveys an idea of the richness, heterogeneity, and methodological difficulty involved in assessing each of the welfare state s actions, as well as their overall short- and long-term impacts on economies and societies undergoing permanent changes (and increasingly open to globalization). In addition, many of the existing studies are based on data comparisons between countries with the all the added difficulty that this implies, despite the efforts of the OECD and the EU to homogenise statistics and to encourage best practices in the various economic, political, and social areas (Nieto 2010). Certain examples and data may be illustrative or worthy of deeper analysis and discussion than the scope of this overview permits (see the Annexes for data references on the following welfare domains and questions): I) In spite of the importance of education to levels of well-being and progress, Spain invests less in this area than the OECD average. Compared with the EU- 27, the percentage of Spanish students is lower in public pre-university education and vocational training, but higher at public universities. Tuitions and fees just cover a small fraction of the total cost per pupil at public universities. Therefore, a question arises: Might academic fees be made more flexible, with the aim of increasing payments from families with higher incomes, also marrying such an initiative to a good system of scholarships and a quality

5 5 framework for vocational training? These measures would help to better perceive the costs and incentives of public investment. As a result, the education system, as a whole, would gain in equity, effectiveness, and transparency. II) Given the satisfactory level of the public health system in Spain (and the fact that health care expenses show higher levels of efficiency than in the OECD, on average), budget cuts and privatization policies may jeopardize these achievements. In some regions, experts have begun to speak even of a health system working at different speeds, blurring the criteria of equity and potentially reducing the efficiency that health care systems introduce in the functioning of economies (by improving citizens quality of life in their double role as consumers and workers, which obviously implies benefits to citizens, enterprises, and the overall economic system). Why not delete useless therapies and reduce health costs that mainly benefit pharmaceutical industries, or private enterprises specialized in certain services, or connected to building activities? To opt for private health care using public resources is not a recipe for improving either equity or efficiency. On the contrary, it seems to a mortgage against the future development of the welfare state and its policies. III) In Spain, the reduction of unemployment is an unquestionable priority. The labour market reforms adopted by the government of President Rajoy does not sufficiently insist upon measures to create jobs (as a basic requirement to improving growth and welfare). Why not encourage more part-time contracts, in particular for young people, reducing taxes or contributions in these specific cases? Such would likely drive a better appreciation of the incentives and costs of public policies: more young people could work and study (at the same time), while companies could hire more workers without increasing their costs in labour quotes. Why not to establish a strong link between perceptions of subsidies to unemployed workers and the achievement of some social benefits for the community, or the improvement of skilled labour through additional training? Probably, certain needs in the areas of dependency, exclusion, or training could be better covered. This would contribute to reinforcing functional and geographic mobility as well, although this objective of promoting mobility requires more active and specific measures, i.e. in the domain of housing policies. In this regard, why do City Councils not offer housing for rent at low prices, with the support of specific legislation requiring banks and the financial system to participate actively in such an initiative (as a way to stimulate economic activity and encourage mobility)? Citizens would win on flexibility and security (flexicurity): in this case, through incentives toward mobility less threatened by uncertainty. 4. The Welfare State as Public Investments The crisis seems to more seriously affect those EU countries where the welfare state has shown lower levels of development (Spain being a good example). As is well known, taxation levels and social expenditure policies are proportionally lower in the European periphery than in the centre of the EU (Navarro 2008). Although no one disputes the need to address deep reforms, the very existence

6 6 of welfare states can facilitate the goals of fiscal and macroeconomic stability without incurring further social cutbacks. To this extent, in addition to fixing a greater fiscal pressure on taxes on capital and implementing more effective campaigns against fraud, the creation of jobs in activities related to social policies can prove useful (Ochando 2011). By this method, greater economic and social cohesion could be achieved, extending the size and strength of markets, reducing uncertainties, and stimulating productivity and economic growth. All these aspects are essential prerequisites to making the welfare state sustainable and, at the same time, to further developing the basis of legitimacy on which public policies must be supported. The State can stimulate investments, growth, and employment through its regulatory capacity and through the impact of its economic and fiscal policies. Governmental measures can contribute to improving the level of well-being by ensuring the effectiveness of public investment in selected areas, such as education, research, health care, and the proper functioning of basic institutions directly involved in the development of productive activities. Obviously, actions taken by the State can also support capital accumulation in privileged sectors, such as infrastructures, the military complex, and the maintenance of public order. Additionally, in the current crisis, many States (following governmental initiatives) have opted for more direct support to the financial sector, facilitating access to public resources at low cost instead of allocating those financial aids to other sectors and activities. As a result of all these actions, a satisfactory global balance might have been expected for society. But the conclusion is not always so positive in social terms. Instead of seeking a wider basis of social legitimacy, the bulk of current proposals and governmental advisors are insisting on reductions to the size of the State and its benefits, giving wider berth to the private sector on the theory that private activities should work more efficiently than public policies. The objectives of social legitimacy of public policies have seemingly been made subordinate to the general and specific processes of capital accumulation. A good example of this can be found in the current EU situation: rather than strengthening the regulation of financial activities (which would benefit of the majority of the population), or increasing tax burdens on higher incomes, or stimulating growth and employment, the predominant political and technical proposals and approaches are limited to further cutbacks in social policies. If the costs and benefits, and the incentives and risks, of the welfare state were more visible, citizens could better perceive the importance of public investments rather than roughly prejudging them as mere inefficient expenses. The welfare state is part of the European Model of the Social Market Economy. Its achievements and shortcomings can be evaluated more rigorously by reinforcing transparency and efficiency, as well as the criteria of stability and equity. Nevertheless, it is not always easy to overcome certain methodological problems that tend to arise in comparative analysis when we try to incorporate structural features, singular characteristics, and changing situations. As was stated at the beginning of the Stiglitz, Sen, and Fitoussi Report (2009): What we measure affects what we do; and if our measurements are flawed, decisions may be distorted. This is a call to award greater attention to the importance of

7 7 the conceptual frameworks and methodological tools used in the analyses and assessments of public policies, social expenditures, and the various effects of the actions of the welfare state. 5. Conclusions Social policies are financed through collective contributions and cannot be held responsible for the crisis, fiscal deficits, or unemployment levels. On the contrary, this crisis can be understood as a war against the State and its policies (Nieto 2010). And, within that economic and political war, the continuing attacks against the welfare state and public policies are part of a strategy of comprehensive, profound, and lasting consequences, whose fundamental aim consists of a strategy to reduce the size of the State, as an adjunct to the enlargement of the scope of action of the private sectors of the affected economies. For that reason, if we as citizens contribute to financing the welfare state, and if we benefit from its policies, we must also strive to make it sustainable, both today and in the long term, struggling to override the current obsession with budget cuts, particularly in the EU countries. To increase the sustainability of welfare policies, improving the criteria of efficiency and equity, it is necessary that the costs and incentives of public policies be more transparent. Above all, it is indispensable that fiscal revenues from capital incomes increase their contributions to fiscal balance and well-being, rather than single-mindedly pursuing the wrong-headed idea that our only option is to affect deeper cuts in social policies. As a cornerstone of the neo-liberal paradigm, cuts to welfare state are consistent with the thesis in favour of privatization and consequent reduction of the size of the State. By opposition to this viewpoint, I conclude with (al least) two questions. First, why should we not be placing greater emphasis on the advantages of public policies, especially when they have been well managed (as in many European countries in recent decades)? And second, why do we repeatedly assume the inevitability of welfare cuts without question? Perhaps there is a degree of guilty conscience at work, because public management has not always been transparent and efficient. Or perhaps a lack of solidarity prevails, where individual and collective fears serve as a false justifications for concluding that something needs to be done, as long as it doesn t affect me. Probably, public policies need to be deprived of the almost-theological cloak that has concealed them, in order to empirically demonstrate their successes and mistakes, their weaknesses and strengths. In this line, data collected in Annexes that follow present some dimensions and variables which it will be necessary to deepen, in order to further broaden the statistical base of this work. Meanwhile, way of an introduction, data provided in this Paper can indeed serve as examples and as instrumental support to the debate around the arguments here presented * Paper accepted and presented at the IPSA Conference, Madrid, July 8 to 12, 2012: International Political Science Association (XXII World Congress of Political Science)

8 8 References: - Armingeon, K. and Beyeler, M. (2004): The OECD and European Welfare States, Edward Elgar, UK-USA. - Conde-Ruiz, J. I., Ocaña, C. y Pérez-Quirós, G. (2007): Análisis cuantitativo del estado de bienestar en Europa: Modelos y resultados, FEDEA, Febrero 2007, Madrid. - Eurostat (2011): Anuario. Estadísticas varias (Population and social conditions) - Heckman, J. (2008): The Viability of the Welfare State, Preliminary Draft, World Justice Forum, Vienna, July 2-5, Versión en español: La viabilidad del Estado del Bienestar, FAES, octubre-diciembre 2008, pp Ver también: Heckman (2009): The Viability of the Welfare State, UCD Geary Institute, Discussion Paper, 9 th March Gallego, R., Gomá, R. y Subirats, J. (2003): Estado de Bienestar y Comunidades Autónomas. Ed. Tecnos. Madrid. - Ministerio de Economía y Hacienda (2011): Presupuestos generales del Estado para el año ES/Presupuestos/Paginas/PGE2011.aspx - Ministerio de Trabajo (2011): Informe Económico Financiero a los Presupuestos de la Seguridad Social de Secretaría de Estado de la Seguridad Social, Madrid. - Mulas-Granados, C. (2010, coord.): El Estado Dinamizador. Nuevos riesgos, nuevas políticas y la reforma del Estado de Bienestar en Europa. Ed. Complutense. Madrid. - Navarro, V. (2008): El ataque al Estado del Bienestar Nieto Solís, José A. (2010): La crisis entendida como una guerra contra el Estado, Temas para el Debate, nº , agosto-sept. 2010, pp Nieto Solís, José A. (2011): España en la OCDE. Avances hacia el Estado de Bienestar. Revista de Economía Mundial, nº 28, pp OCDE (OECD 2011): Taxing Wages OECD Paris. - Ochando, C. (2011): Estado del bienestar, crisis económica y nuevos riesgos sociales. 15 Diciembre Shaikh, A. (2003): Who Pays for the Welfare in the Welfare State? A Multicountry Studies, Social Research, nº 70, vol. 2, Summer 2003, pp Traducción al castellano en: ( - AShaikh/welfare_state.pdf). - Stiglitz, J., Sen, A. y Fitoussi, J. (2009): Report by the Commission on the Measurement of Economic Performance and Social Progress.

9 9 ANNEXES: I) ANNEX 1 There exist well-known differences between the various welfares states (in developed countries). As an introductory approach, Figures 1, 2 and 3 reflect some illustrative data on this issue. The Annex 6 contains further information on the subject. See Conde-Ruiz (2007), Argimengeon and Beyeler (2004) as examples of different classifications of welfare states. Without downplaying the debates concentrated on the various welfare states, their policies, or the quality of indicators selected for analysis, it seems unnecessary to insist on a fact already sufficiently known and studied: for structural and historical reasons, welfare state policies are less developed in Spain than in other principal European countries. A useful summary of the causes and consequences of this relative backwardness can be found in Navarro (2008), although the characteristics of the Spanish welfare state deserve more careful study, at least when the analytical objective is to assess their perspectives and sustainability. Figure 1: Expenditure in social protection in Spain and the EU (% of GDP) Source: Seguridad Social 2011, Informe Económico-Financiero, p Figure 2: Expenditure on social protection per inhabitant, 2007 (PPP)

10 10 Figure 3: Expenditure on pensions, II) ANNEX 2 Figures 4 and 5 summarize the aforementioned work by Shaikh (2003): they show that in the U.S., in the period , social expenditures were financed on a net basis with contributions from workers (see the evolution of taxes and benefits of workers, and the exceptions in the 1970s and 1990s). Figure 6 contains aggregated data (social net wage) from the U.S. and other five OECD countries (Australia, Canada, Germany, Sweden, and the U.K.). For EU data: see Figure 7 (and Table 1), as well as Tables 4, 5 and 6 (in Annex 5). Obviously, data quality is a key factor in confirming this observation, even more so for valuing or comparing the different national situations. Taking into account these statistical limitations, data in Figure 7 (and Table 1) allow the drawing of a preliminary conclusion: in the EU, social expenditure as a percentage of GDP has been smaller than social revenue as a percentage of GDP, at least for the period, and with a few exceptions (i.e., the case of Spain until 2002, where social expenditures exceeded social revenue). Figure 8 shows that this exceptional behaviour in Spain occurred from the beginning of the democratic transition and was probably decisive in the progressive approach of Spain s well-being to levels registered by the major OECD countries. However, following the close of the 20th century, the Spanish social security system began to register surpluses which have persisted even in recent years, despite the sharp fall in GDP and employment rates, as reflected by Figure 9 (see also additional data collected in Annex 6). Figure 4: U.S. Labour taxes and benefits (in % of GDP) Source: Shaikh (2003), p. 42.

11 11 Figure 5: U.S. Net social wage (in % of GDP) Source: Shaikh (2003), p. 43. Figure 6: Combined net social wage, in % of GDP, for 6 OECD countries (U.S., Australia, Canada, Germany, Sweden, and the U.K.). Source: Shaikh (2003), p. 46. Table 1: Revenue and expenditure of social protection (in % of GDP) EU countries Flows / years Alemania Revenue 29,8 30,8 29,3 Expenditure 29,0 30,1 27,7 Francia Revenue 30,3 30,5 30,6 Expenditure 30,4 30,4 30,5 Grecia Revenue 21,7 24,7 25,4 Expenditure 20,8 24,0 24,4 España Revenue 21,1 22,5 22,6 Expenditure 20,8 24,4 21,0 Suecia Revenue 35,1 34,8 34,2 Expenditure 32,2 31,6 29,7 Reino Unido Revenue 28,0 26,1 24,2 Expenditure 26,9 25,7 25,3 Polonia Revenue 21,5 19,3 Expenditure 21,1 18,1 EU-15 Revenue 28,4 28,4 27,8 Expenditure 28,4 28,4 27,8 EU-25 Revenue 28,0 27,3 Expenditure 27,0 26,4 Source: Presupuestos Seguridad Social 2011: Elabor. propia

12 12 Figure 7: Revenue and expenditure of social protection in the EU (in % of GDP). (See data on Table 1: Total de Ingresos y Gastos de protección social en % del PIB) %/PIB UE: Ingresos y Gastos de protección social en % del PIB Alemania Francia Grecia España Suecia R.Unido Polonia UE-15 Francia España Suecia R.Unido UE-15 UE-25 Fuente: Presupuestos Seguridad Social 2011, p Elaboración propia Alemania Ingresos Alemania Gastos Francia Ingresos Francia Gastos Grecia Ingresos Grecia Gastos España Ingresos España Gastos Suecia Ingresos Suecia Gastos R. Unido Ingresos R. Unido Gastos Polonia Ingresos Polonia Gastos UE-15 Ingresos UE-15 Gastos UE-25 Ingresos UE-25 Gastos Figure 8: Evolution of public expenditure and revenue, Spain (% of GDP) Source: BBVA (Informe Económico 2001), tomado de Conde-Ruiz et al. (2007), p. 5

13 13 Figure 9: Evolution of GDP, employment and Social Security deficit or surplus Source: Seguridad Social 2011, Informe Económico-Financiero, p III) ANNEX 3: Despite efforts made over the past three decades, social expenditures in Spain are still lower than those registered in the major countries of the EU and OECD (Mulas 2010, Nieto 2011), making it necessary to proceed (at least in a preliminary analysis) to the particular breakdown of those expenditures. Figure 3 (in Annex 1) shows the low level of Spanish pensions, in despite of the fact that pensions constitute the bulk of social expenses in developed countries, as shown in Figures 10 and 11 (for Spain). Further, Table 3 shows how, since the beginning of the current crisis, Spain has allocated an increasing proportion of resources to unemployment support (desempleo). As seen in Tables 2 and Figure 12, nominal growth of social expenditures in Spain has been greater than the growth of total expenditures included in the National Budgets for , although this fact is conditioned by the abovementioned increases in unemployment and pension expenditures. The rise in pension expenses appears to be a structural feature in Europe, due to the ageing of the population (see also synthetic data included in Annex 6).

14 14 Figure 10: Social expenditure breakdown, Spain Gestión y Admón Seg.Soc. 4,3% Desempleo 16,6% Fomento del empleo 4% Otras prestaciones eco. 7,4% Desglose Gasto Social Pensiones 61,2% Fuente: Presupuesto generales España. Elaboración propia Source: Presupuestos generales de España. Elaboración propia (see Table 3). Figure 11: Main programs of the welfare state in Spain (average ) Source: Eurostat. Tomado de Conde-Ruiz (2007), p. 4. Table 2: General Budgets of Spain, Areas / years % Basic Public Services 6,3 % , , , ,04 Total Social Expenditure 58,0 % , , , ,87 Economic interventions 10,2 % , , , ,92 General interventiones 25,5 % , , , ,45 Total for chapters I to VIII 100 % , , , ,00 Total finantial flow consolid ,62 Source: Presupuestos generales de España. Elaboración propia.

15 15 Figure 12: General Budget of Spain. Expenditure breakdown, Millones Euros Presupuestos Generales España Gastos : Servicios Publicos Básicos. 2: Gasto Social Total. 3: Actuaciones de carácter económico. 4: Actuaciones de carácter general. 5: Total Gasto (cap. I a VIII) 2008 Source: Presupuestos generales de España. Elaboración propia. Table 3: Spanish public expenses in social policies. Breakdown Breakdown - Years Servicios Públicos Básicos , , , ,10 Gasto Social Total , , , ,91 Actuaciones de Protecc. y Promo. social , , , ,82 Pensiones , , , ,76 Otras prestaciones económicas , , , ,36 Servicios sociales y promo. social 2.287, , , ,58 Fomento del empleo 7.683, , , ,80 Desempleo , , , ,06 Acceso a la vivienda y fomento edific , , , ,66 Gestión y Admón. de la Segu. Social , , , ,59 Producc. bienes públicos carácter prefe , , , ,09 Sanidad 4.433, , , ,49 Educación 2.932, , , ,58 Cultura 1.220, , , ,03 Actuaciones de carácter económico , , , ,37 Actuaciones de carácter general , , , ,71 Total capítulos I a VIII , , , ,00 Emisión de Deuda ,53 Total consolidado ,62 Gasto Social Total/Total cap. I a VIII 47,83% 53,13% 51,64% 58,05% Pensiones/Total cap. I a VIII 31,16 32,16 30,92 34,37 Pensiones/Gasto Social Total 61,62 60,94 59,88 61,24 Source: Presupuestos generales de España. Elaboración propia

16 16 IV) ANNEX 4 Figure 13 shows the evolution ( ) of Spanish expenditures in education, health care, and pensions, confirming the growing weight of pensions in the Spanish welfare state. Figures 14 and 15 reflect the evolution of different types of pensions, highlighting the significant increase in pensions for retirement. Although this is a well-known fact, taking it into consideration is essential for evaluation of the global sustainability of the Spanish welfare state. However, in the short term, the priority must be to face the serious problem of unemployment, which in 2012 continues to increase well above of levels present in the rest of the EU countries. Figures 16 and 17 show how in 2007 a significant decline began in Social Security contributions, as well as in the number of persons employed. Figure 13: Expenditure on education, health care and pension (% of GDP) Source: Eurostat (see Conde-Ruiz 2007, p. 6) Figure 14: Expenditures on pensions, Spain (EUR million) Source: Presupuestos de la Seguridad Social 2011, p. 135.

17 17 Figure 15: Pensions (evolution by regimes, on average) Source: Presupuestos Seguridad Social 2011, Anexo p. 175 Figure 16: Contributions to Social Security (evolution by regimens) Source: Presupuestos de la Seguridad Social 2011, Anexo p. 35

18 18 Figure 17: Number of persons occupied by gender. Source: Presupuestos de la Seguridad Social 2011, Anexo p V) ANNEX 5 Spain must face the challenge of reducing government deficits (in the framework of the EU fiscal commitments), while maintaining an upward spending trend in subsidies for unemployment and pensions, and while preserving the government s stated purpose of not raise the tax burden. This situation apparently leads Spain to the blind alley of implementing cuts in health and education, while establishing public aids to the financial sector. Mostly of these expenditures are administered by decentralized regional authorities of the Comunidades Autónomas (Autonomous Communities). Obviously, other alternatives do exist, but their viability depends on the political will to increase (certain) tax revenues and to tackle the necessary structural reforms with an eye to stability and long-term strategy (unfortunately unusual in Spanish political approaches to the implementation of economic policies). Compared to the major European countries, social policies in Spain have been relatively underdeveloped until recent decades, due to historical, political, and economic factors (and to the lack of experience and resources for the implementation of both specific and general policies across the various social areas). Once again, this comparison can be useful in confirming the existence of different models of the welfare state, in particular if we take into account the total cost of social protection per capita (Table 4) and we consider the costs and revenues of social protection as a percentage of GDP (Tables 5 and 6). As an example of differences that could be obtained, depending on the selected indicators for economic and social analyses, the Annex 6 includes synthetic data from Ireland. In this country, the high GDP growth in recent years has translated statistically into a small value in the ratio of social expenditure as a percentage of GDP, although the figure relative to social expenditure per inhabitant has grown very substantially (as reflected in Figure 18).

19 19 Figure 18: Growth of social protection per inhabitant (EU-15) Source: Presupuestos de la Seguridad Social 2011, Anexo p. 413 Table 4: Expenditure of social protection per inhabitant in the EU (in PPP) Source: Presupuestos de la Seguridad Social 2011, Anexo p. 382

20 20 Table 5: Costs of social protection in the EU (% of GDP) Source: Presupuestos de la Seguridad Social 2011, Anexo p. 381

21 21 Table 6: Evolution of revenue of social protection in the EU (% of GDP) Source: Presupuestos de la Seguridad Social 2011, Anexo p

22 22 VI) ANNEX 6 (Appendix) - Tables and Charts: A, B, C, D Population age structure by major age groups (%) 0-14 years old years old 65 y. old or over EU Spain Germany Turkey Source: Eurostat Yearbook Elaboración propia Life expectancy at birth (years) Total Men Women EU Spain Germany Romania Source: Eurostat Yearbook Elaboración propia Government revenue and expenditures, 2009 (% of GDP) Main components of government revenue, 2009 (%)

23 23 - Tables and Charts: E, F, G Main components of government expenditure, 2009 (%) Proportion of employee with a contract of limited duration, age group 15-64, 2009 (% of total employees) Public expenditure on education, 2007 (% of GDP)

24 24 - Tables and Charts: H, I, J, K Employment rate, age group (%) EU Euro area Spain Netherlands Italy Source: Eurostat (lfsi_emp_a) - Elaboración propia Persons working part-time, % of total employment EU Euro area Spain Netherlands Switzerland Source: Eurostat (tps00159, lfsa_e2gis and lfsa_egan) Elaboración propia Median gross annual earnings of full-time employee, 2006 (EUR) Minimum wage (EUR per month, as of 1 July 2010)

25 25 - Tables and Charts: L, M Tax Wedge in % of labour costs for different wage levels and household types (OECD and Spain, 2000 and 2010). Source: OCDE, OECD Taxing Wages: Country note for Spain Total tax revenue as percentage of GDP, 2009 (OECD countries have been ranked by their total tax revenue to GDP ratios) Source: Revenue Statistics, , 2011 Edition