The call for general elections on November 29 arrives at a moment when housing has become the country’s main source of social discontent. The encampment at Puerta del Sol and months of tension over rent prices have given the campaign its backdrop, and all signs indicate that the parties will frame it as a plebiscite on that issue. This is understandable and largely justified: few concerns cross so many generations and regions at once.
In recent days a second issue has emerged: pensions. But the debate has been posed in its most elemental terms: whether they will be paid or not. The answer should be assumed, obviously, and precisely for that reason the discussion dodges the substantive point: who funds them, with what resources, and at the expense of which other items. People talk about pensions, yes, but not about the core issue.
“The pension debate has been posed in its most elemental terms: whether they will be paid or not. The answer should be taken for granted”
The risk for Spain lies in what is off the page. Electoral incentives penalize reforms whose costs are immediate and whose benefits arrive late, and three of the most relevant imbalances in the Spanish economy correspond exactly to that profile: a pay-as-you-go pension system whose equation no longer adds up, a shrinking industrial base, and a fiscal debate that rarely delves into spending efficiency. None of them yields short-term headlines, and when one does appear, as is the case now with pensions, it surfaces on its most superficial side. All three condition what the government that emerges from the polls will be able to do, and all three deserve a deeper electoral debate.
Pensions: not if they’re paid, but who pays them
That pensions will be paid is not in dispute; what deserves debate is how and at what price. It is also useful to defuse a misleading frame. The pension debate is not, at heart, a generational clash between retirees who collect too much and young people who struggle to make ends meet. It is a question of arithmetic. The pay-as-you-go system, in which today’s contributors fund today’s pensions, outperforms capitalization when population and productivity grow faster than the return on invested savings, a condition that economic literature formalized in the late 1950s and that Spain, during the expansion of the welfare state, fulfilled with ease.
Fernando Pinto, associate professor of Applied Economics at the Universidad Rey Juan Carlos, has broken down with official 2025 data a question almost no one asks with numbers in hand: who really pays for pensions. His answer: of every 100 euros paid in pensions, 73 come from social contributions, 23 from taxes, and 4 are paid with debt.
The system cost about 218.7 billion euros in 2025. Contributions are hitting records, but they don’t suffice: the State had to contribute more than 50 billion through taxes and lend to Social Security another 8.4 billion.
“Of every 100 euros paid in pensions, 73 come from social contributions, 23 from taxes and 4 are paid with debt”
There is also an invisible bill. According to Pinto’s calculations, the Social Security debt now reaches 136.18 billion euros, almost ten times what is in the pension pot. Those loans do not accrue interest for Social Security, but the State does finance them in the market. With an average debt cost of 2.31%, they are about 3.15 billion euros a year just in interest. That money comes out of the General State Budgets and competes directly with health care, education, elder care, and the rest of welfare-state spending.
The trend is not in its favor. The condition that made the pay-as-you-go system advantageous has weakened on both sides: productivity has stagnated for years, largely due to a low-value-added production model, and the demographic pyramid continues to age, with the retirement of 6.6 million baby boomers on the horizon. AIReF endorsed in May the government’s spending forecast, with net pension outlays at 13% of GDP on average through 2050, but warned that public debt could reach 123% of GDP by that year. Immigration in recent years, as Funcas has noted, improves the ratio of contributors to pensioners, but it is not enough by itself to reverse the trend.
The political consequence is clear: the system does not need another patch, but a deep rethink of the model. For two decades, every legislature has added a piece (a new indexation, an intergenerational equity mechanism, a rise in contributions, a transfer from the Budgets) that solves the year’s headline and postpones the fundamental question. Each reform postponed shifts the adjustment to the next government, which faces it with less fiscal room, more interest to pay, and an aging population pyramid.
“Each postponed reform shifts the adjustment to the next government, which faces it with less fiscal room, more interest to pay and an aging population pyramid”
That revision should be one of the major debates of this campaign. There are plenty of precedents. Sweden adopted in 1994, with the support of five parties of different stripes, a system of notional accounts with a funded component, to which in 2001 it added an automatic balancing mechanism, and has maintained it as a State-wide agreement independent of changes in government. Austria introduced in 2003 the so-called mochila, an individual account funded by the employer that accompanies the worker throughout their working life and that can be used to top up retirement.
People may prefer one model over another, and none can be transplanted without adaptation. The Swedish model, the Austrian model, or whatever approach each party wants to defend, but defend it with numbers, with a calendar, and with a clear division of who pays what. What a country with 218.7 billion euros at stake per year cannot afford is another campaign in which the only promise is that pensions will be paid.
Industry: from the absence of policy to the plan that’s missing
The second critical element is the lack of a sustained industrial policy. According to a study by the BBVA Foundation and the Valencian Institute of Economic Research (Ivie), manufacturing industry has fallen from contributing 17.9% of the economy’s value added at the start of the century to 11.8% in 2024, 3.9 points below the European average and far from the community target of 20%. In that period 723,500 industrial jobs have vanished, a quarter of the total.
Tourism and services have offset this in employment, and their contribution deserves recognition. But their productivity per hour worked is noticeably lower, and an economy that specializes in low value-added activities erodes its growth potential. And this is closely tied to the previous point: without productivity there are no higher wages, nor sufficient social contributions, nor fiscal room.
According to a recent Bank of Spain document, productive efficiency per hour worked in Spain in 2025 was around 80% of that in Germany, France, Italy, and the Netherlands. Part of this gap relates to company structure: only 35% of Spanish workers are in firms with more than 50 employees, compared with 66% in Germany, according to OECD data. Size matters: small firms invest less in technology, innovate less, and utilize resources less efficiently, which limits their productivity growth potential. The Bank of Spain itself attributes much of the improvement since 2013 to capital and labor shifting toward more productive firms within each sector.
There is also a compositional effect, the so-called Baumol disease: when the economy shifts weight from industry to sectors with slower technical progress, aggregate productivity suffers even if each sector improves individually. Between 2000 and 2013, the decline in the share of manufacturing dragging down total-factor productivity (TFP) in Spain. The conclusion is clear: raising TFP, the component that captures efficiency and technical progress, is imperative. Despite improvement since 2013, the gap with major euro-area economies remains around 8%, and closing it would require sustaining the favorable growth differential for two or three decades.
“When the weight of the economy shifts away from industry toward sectors with slower technical progress, aggregate productivity suffers even if each sector improves independently”
This diagnosis is not new, and there are plenty of documents that reflect it. In February 2019 the Ministry of Industry presented the General Guidelines for the New Spanish Industrial Policy 2030, which already set as priorities to raise productivity and the weight of industry in GDP, to promote digitalization and internationalization, and to advance decarbonization. In December 2024, it sent to Congress the Industry and Strategic Autonomy Bill, intended to replace a 1992 regulation. After almost two years in amendments, the project lapsed with the dissolution of the Cortes, and data show that the gap remains open.
The question the campaign should force to answer with concrete measures is what Spain will do, with its own instruments, to regain industrial weight. Reindustrialization demands a continuity that goes beyond a single legislature. An electoral debate that dives into the how, with measurable objectives and a timetable, would allow voters to compare country projects rather than statements of intent.
Efficient public spending versus taxation: from how much to what for
It is to be expected that taxation will be presented in the campaign as a choice between higher or lower taxes, and that each party will lean on the indicator that best supports its position. Tax pressure, revenue as a share of GDP, places Spain near the European average. The fiscal effort, which relates that pressure to income per capita, places it, according to the Institute of Economic Studies, at 17.8% above the EU average. Both measures answer different questions: the first describes the size of revenue; the second, what that means for taxpayers depending on their income. The second has its critics, who say it tends to penalize lower-income countries. Used as partisan argument, the two figures feed a circular debate.
The context adds another dimension. The Tax Agency collected 325.356 billion euros in 2025, 10.4% more than the year before, in a period marked by economic growth, inflation and various regulatory changes. Regardless of how one values that evolution, that record figure raises the public’s expectations regarding the use of public resources.
Just look at our northern neighbors. In France, discontent over the perceived deterioration of services such as healthcare or transport, in a context of a high cost of living, has translated into significant social mobilizations and growing distrust of institutions. Spain, through general strikes, is not necessarily bound for that situation, but the trend is indicative. European citizens are paying increasing attention to the fate of every euro collected: wait times, punctuality of transport, maintenance of infrastructure, quality of education, or care for the dependent. The campaign offers an opportunity to anticipate and position themselves.
“European citizens are paying increasing attention to how every euro raised is spent”
Evaluating spending efficiency is a condition of good governance. AIReF has been conducting spending reviews for years, spending reviews, whose degree of implementation has been uneven, and which provide a useful basis for that debate.
A debate focused on the efficiency of public services, that is, on what gets financed, with what results, and how accountability is ensured, would be more useful than reiterating positions on tax levels, and would allow parties, regardless of their orientation, to contrast verifiable proposals.
The true test of the campaign
The three issues share a temporal logic: they require decisions with immediate costs to achieve results that will be seen, at best, in the next legislature. For that reason it is unlikely they will occupy the center of an eight-week campaign, and for the same reason they would be the best measure of the ambition of the programs.
“The three issues share a temporal logic: they require decisions with immediate costs to obtain results that will be seen, at best, in the following legislature”
Talking about housing is necessary. But a quality campaign should be measured by the depth with which the parties address the structural: a pension reform that is not just another patch, an industrial plan with concrete measures to boost productivity and added value, and efficient public services that account for every euro.
