Social Security financing: equity and sustainability issues

The occasional paper "Social Security financing: basis of equity and sustainability" (only available in Portuguese) is written by CFP president, Teodora Cardoso, and is divided into four parts: the first chapter frames the theme, the second presents the case of Portugal, the third is about capitalization and savings and the last one lists possible solutions.

This occasional paper is the result of Teodora Cardoso's participation in the conference "The Public Capitalization of Portuguese Social Security: Position and Perspectives", organized by IDEFF at the Faculty of Law of Lisbon, on 19 October 2018.

Over the decades, public finance management in Portugal has been focused on defining annually the level of public expenditure and the amount of revenue needed to finance it, including the level of taxes and the use of credit. The State financed like this extended its powers and took responsibility for granting of an important set of rights.

The rights to social protection and universal access to health care have assumed an increasing weight in the allocation of public expenditures and, consequently, in the amount of revenues that they absorb in each year. More importantly, the guarantee of these rights is characterized by a dynamic of its own, different - sometimes even opposite to - the cyclical evolution of the economy, which, to a large extent, depends on the level of revenues that the State collects each year.

The Portuguese public finances benefited from favorable conditions arising from the low starting levels of the state's fiscal burden and indebtedness, a period of rapid economic growth, its ability to access market financing and through European funds, and of a young population giving rise to a surplus social security system and low health costs.

Partly because of these reasons, but also because the budget framework remained concentrated in the short term, the country did not adapt the public financial management system to the evolution of the burdens and commitments assumed by the State. As a result, for decades, deficit budgets and accumulation of public debt were maintained, in parallel with a pension system totally based on a pay-as-you-go mechanism and a tax-financed health system.

Date of last update: 31/01/2019