The Social Security system has a big problem raising funds, which is the same issue the national government is going through as it struggles to get tax revenues. For this reason, as we reported here last Wednesday, the government has no option but to dip into the system's reserve fund again in order to help compensate for how unemployment has adversely affected the system's balance sheet.
The system's lack of contributing workers is one thing, but another thing is the fact that it is structurally inefficient. This has been obvious since jobs began to pick back up. In the first half of the year, Social Security filings rose by 511,358 (1.7%), but revenues per worker only went up 1% and overall revenues fell by 1.1%. New job creation consists mostly of so-called "mini jobs" that contribute the bare minimum in social security. Plus, the 100-euro flat tax that was applied at the beginning of this year to new open-ended contracts no matter what they pay. Also, a dwindling reserve fund is earning less interest and the underground economy continues to rob contributions as the government does little to stop it.
So, this is the situation even though in Spain social security contributions are the fourth-highest in Europe. The government has not lowered these contributions and keeps using patch policies that are not fixing the underground economy, which is blight on the system. In a context of low growth, low salaries and high Social Security contributions, it will difficult to rebuild the system's savings if the government does not make swift reforms.
