Spain, the second OECD country that increased social spending the most due to the covid

Spain is the second member country of the Organization for Economic Organization and Development (OECD) that increased its social spending the most to face the storm caused by the covid. In 2020, when an unknown virus turned the world upside down, it increased public outlays to 31.2% of GDP, a 6.5 point jump from the previous year. This increase, which doubles the average for the block as a whole, made it possible to insufflate additional funding for health, expand unemployment benefits or sick leave at a time when all the seams threatened to burst. Only Canada experienced higher percentage growth (+6.9 points), according to data released this Thursday by the Paris-based agency.

The arrival of the pandemic was a general setback, which convulsed overnight both daily routines and the foundations of the world economy. Everything was different in this crisis compared to the previous ones. It was virulence, with a deep and sudden collapse of the GDP; the origin, a health emergency, and also the response that was given, with an unprecedented expansion of public spending. Although with different intensities, the governments opened the tap to keep activity and income afloat during the forced lockdowns that they ordered to stop contagion. In OECD countries, disbursements to GDP grew by about three points between 2019 and 2020, from 20% to 23% of GDP.

As expected before a shock caused by a virus and not by an economic imbalance, spending fell in record time after the bump. The OECD estimates that in 2022 the ratio fell by two points, to 21% of GDP, while after the Great Recession of 2008 the reduction was much slower and never returned to the percentage prior to the debacle. A difference that, according to the institution, is justified by the strong rebound in activity after the period of strict confinements: GDP fell 4% in 2020, but advanced 6% in 2021 and another 3% in 2022 on average of the block.

In Spain, the drop in GDP was 11%, and the advance in 2021 was 5.5%. In other words, the requested land has not yet been recovered, and the invoices left due to the increase in the deficit and debt remain to be paid . On the other hand, the OECD estimates that spending fell to 29.5% of GDP in 2021 and 28.1% last year, percentages more aligned with the EU than with the club of advanced economies, of which they are a part. countries with a very meager social shield, such as Mexico, or where private systems have more weight.

denominator effect

The rise in the ratio of spending to GDP is not only due to higher disbursements. Part of the increase is explained by the drop in activity, which in Spain has been particularly intense. This is the so-called denominator effect: if the amount of GDP —the denominator— decreases, while the numerator —expenses— grows or remains stable, the percentage increases. The OECD, however, considers that almost all the rise in public spending registered between 2019 and 2020 is due to the growth in disbursements: of a total increase of 3 points, 2.5 would be explained by higher spending and only 0.5 due to the drop in GDP.

In hard and hard money, those 6.5 additional points of public spending that Spain recorded in 2020 correspond to about 70,000 million euros, more or less what the Tax Agency collects for VAT in a year. The relaxation of temporary employment regulation files (ERTE) was perhaps the most notable measure in labor matters approved by the Spanish Executive at the beginning of the crisis, a tool that benefited more than three million workers and that prevented massive job destruction. Added to this are the resources injected to prop up basic services, with health at the forefront.

In fact, the increase in spending experienced in 2020 in the OECD countries is due to the greater investment in health, which in the case of Spain has materialized in huge transfers to the regional administrations, in charge of providing basic services. The rise in disbursements in unemployment benefits also stands out, which includes ERTE in Spain, active employment programs or aid for the lowest incomes, such as the minimum vital income.

Regardless of the pandemic, the chapters with the greatest weight in spending among the club countries are healthcare and pensions, which accounted for 5.8% and 7.7% of GDP on average with data from 2019. Benefits for retirement are the largest item in many European countries, led by Greece (15.7% of GDP) and Italy (15.9%). Spain is also in the upper range (11.3%), although the estimated bill for 2023 will be much higher, reaching 190,000 million (more than 13% of GDP). At the other extreme are countries like Chile, Iceland, South Korea and Mexico. As for health, in France, Germany, Japan and the US, spending on GDP exceeds 8%, compared to percentages of less than 3% in Mexico, the Netherlands or Switzerland. These differences are due both to the structure of the population —older age, more spending on healthcare and pensions—, as well as to the orientation of the systems towards a more public or private-based structure.