The national debt will reach nearly 100% of GDP -- exactly 99.8% -- by the end of 2014, which is two years before the government expected it to hit that level. In other words, we owe as much as we produce in one year. This unsustainable financial position, which elEconomista has reported on many times before, shows the seriousness of our budget imbalances and magnitude of the main roadblock on the road to recovery: a gargantuan national debt caused by a high annual deficit that has existed for years.
Trimming both the national debt and annual deficit is the government's main job, but it is failing to do so far. The nation's Finance Minister, Cristóbal Montoro, talked repeatedly yesterday about creating recovery funds and socializing the budget. But talking like this is not going to lead to real solutions, most of all because after announcing that taxes would not increase, social security taxes will in fact go up 5 percentage points for citizens in the highest income bracket.
The Social Security system if copying a tax strategy that already failed in other areas of government. The worst consequence of Fátima Báñez's decision is the effect that it will have on top-level businesses and highly-qualified workers that typically receive the highest salaries. Inevitably, the decision will bring new layoffs.
Worse, the Social Security system will likely not increase its overall revenues and will go farther into debt. Báñez is wrong if she believes that she'll get labor unions to back pension reform. Raising social security taxes will only undermine the major efforts that companies have made in an effort to weather years of economic crisis.