Social security system cuts will only have minor impact
An explanatory memorandum attached to an amendment extending the freeze on pension increases to end-2022 reveals that the medium-term deficit of Greece’s social security system remains considerably high despite dramatic cuts to its expenditure.
The convergence of pensions of old and new retirees to around 60 percent of the average salary does not contribute toward a solution to the system’s problem. The updated estimates of the midterm fiscal plan show that the system’s deficits this year and next are seen amounting to 9.3 percent and 8.56 percent of gross domestic product respectively, with a slow decline up to 2021.
The Labor Ministry admits in its memorandum that the estimated deficits will remain high in the medium term, with a negative impact on state finances and the restructuring of the budget, hampering growth. In absolute figures pension expenditure will hardly change, from 30.2 billion euros this year to 30.13 billion in 2021. Its ratio to GDP will go down only thanks to the projected economic growth.
It is this dimension that the ministry uses as a pretext for freezing pensions up to the end of 2022, in order to meet the targets of the bailout agreement and the midterm plan.
