Is the welfare state sustainable?

BarcelonaWhen he was the European Union's top diplomat, Josep Borrell described Europe as "a garden," in contrast to the "jungle" that is much of the rest of the world. On paper, this supposed garden is based on the security and capacity for citizens to progress economically and materially, guaranteed by a strong state that redistributes wealth through taxes, but above all through basic services. In other words, the defining element of European progress is the so-called welfare state. Despite Borrell's positive words, the viability of this welfare state is being questioned across the continent, doubts that also affect Catalonia and Spain. What future, then, does the welfare state system, on which the Catalan economy is based and on which millions of people depend to a greater or lesser extent, have?

The production model: problem and solution

"Without saying that the welfare state has failed, we must try to ensure that over the next 25 years we can guarantee more sustainable economic growth than we currently have," says Josep Reyner, president of the Catalan economic commission of the College of Economists of Catalonia. The consensus among Catalan and Spanish economists is almost unanimous: if we want to maintain or expand the current welfare state, a shift in the production model is necessary. Currently, both Catalonia and Spain have a production model heavily based on low value-added activities. The paradigmatic case, and one that Tourism is often used as an exampleLow wages, a large workforce, fluctuating activity (lots of work at Christmas and in summer, very little in October or February), and, in general, very low productivity. But there are others, from certain sectors of retail to industries like meat processing, that have a similar production model. In this respect, productivity is the element that most economists emphasize the most. Simply put, it is a measure of the efficiency of the economy. That is, how much labor and how much capital (machinery, offices, factories, etc.) are needed to produce goods or services.

An economy with high wages and high productivity allows the state to collect more money. On paper, the tax burden—that is, the ratio of tax revenue to gross domestic product (GDP, the indicator that measures the size of an economy)—in Spain is significantly lower than in other European countries, such as Italy, France, Germany, or Belgium, but so is productivity. GDP per capita, a measure that allows for comparison of productivity between countries, has never reached the levels of the most advanced countries on the continent for Catalonia and Spain. Economists argue that, if current levels of well-being are to be maintained, the economy needs to take a leap forward in productivity. To achieve this, sectors that currently have the highest productivity need to lose ground, while industries requiring high levels of investment, both material and physical (for example, telecommunications and legal services), need to be strengthened. "The viability of the welfare state is based on this transformation of the economy in a short period of time," says Reyner. Thus, business investment, infrastructure investment, and improvements to the education system should be priorities for maintaining a robust welfare state, along with strengthening key high value-added sectors.

Can we be optimistic? For the moment, the data is inconclusive, but over the last two years, the Barcelona Chamber of Commerce has been detecting a shift in Catalonia's production pattern towards greater investment, with sectors offering high wages, strong exports, and high productivity gaining ground. "We cannot confirm whether there is a change in the production model, but there are signs pointing in the right direction," said Joan Ramon Rovira, director of the Chamber's research department, last week. in the presentation of its quarterly report on the Catalan economy.

Chronic unemployment...

Another pillar of the welfare state is job security. A distinguishing feature of Europe compared to, for example, the United States, is that workers who lose their jobs receive much more generous state aid. Adjusted for inflation, the average unemployment benefit in Catalonia is lower now than it was 35 years ago, but there is also less unemployment.

Despite the drop, unemployment remains very high (8% in Catalonia, above 10% in Spain, compared to 6% in the Eurozone), although from 1988 to 2024 the Catalan population had grown by two million people, to 8.15 million, thanks essentially to immigration. This population increase is due precisely to the current production model, in which sectors intensive in low-skilled, low-wage labor play a significant role: many productive sectors need workers they find abroad, while at the same time other segments of the population live with almost permanent unemployment, which keeps the rate chronically high.

"60% of salaried workers earn between one and one and a half times the minimum interprofessional wage," a figure that rises to 81% in the case of immigrant workers, Reyner points out. In other words, six out of ten Spanish salaried workers earned less than €24,900 gross in 2025. Given that the minimum wage is exempt from income tax, the fact that—as has happened in the last two years—the number of people registered with Social Security has increased does not have as great an impact on public finances as might initially be expected. However, population growth does impact public spending on essential services such as healthcare and education.

...and almost five years of austerity

However, one of the factors that best explains the widespread perception that public services have deteriorated is the simple fact that, between 2011 and 2014, spending on them was cut by the vast majority of public administrations, a consequence of the austerity policies applied throughout the European Union. These policies were particularly evident in the peripheral European states, such as Spain, which received a financial bailout that resulted in their public finances being placed under intervention for much of the 2010s. Thus, according to data from the Department of Economy, in 2010 spending on healthcare, education, and social rights was €0.52 billion, €0.2 billion, and €2.4 billion, respectively. By 2014, these figures had risen to €16 billion for healthcare, €7.7 billion for education, and €3.7 billion for social rights. This represents increases of 55%, 48%, and 54%, respectively.

Now, there are two elements to consider. The first is that, in these 14 years, the Catalan population grew by more than 586,000 inhabitants and prices rose by 30%. And the second is that, in the midst of this period, these austerity policies caused per capita spending to plummet for almost four years, and it took another six years to recover real levels of per capita spending on these essential services.

Adjusted for inflation, in 2010 the Catalan government allocated the 2024 euro equivalent of €1,802 per person to healthcare, a figure that had fallen by 20% to €1,430 by 2013, while spending on social services also fell by 33% during the same period. In the case of education, spending bottomed out a year later, in 2014, at €677 per capita, 26% below the €921 per capita of 2010, when the cuts began. It should be noted that in all three cases there are demographic factors that can affect spending—for example, the percentage of the school-age population varies annually, or, in healthcare, there could be a global pandemic—however, the per capita figures adjusted for price variations provide a rough idea of ​​the magnitude of the cuts.

In all three cases, and always adjusting the data for inflation, per capita spending figures from 2010 were not recovered until the pandemic hit. Although the efforts of successive governments to reverse the situation and increase spending on healthcare, education, and social services are evident from 2015 onwards, the cuts left a gap in spending that lasted a decade.

Funding: the (negative) Catalan difference

"Either there is a clear and meaningful agreement on the financing deal, or we won't be able to afford the Catalonia of 8 million," declared former Catalan President Pere Aragonès last May. Beyond the production model, high unemployment, and the years-long delay in reversing cuts to basic services, Catalonia faces an additional factor that, according to most economists in the country, negatively impacts the future development of the welfare state: the fiscal deficit and, more specifically, the inadequate funding of the Catalan government.

The fiscal deficit is the difference between the amount of money Catalonia contributes annually in taxes and the amount ultimately spent in Catalonia or on services that benefit Catalans. The Catalan government has been calculating this figure for years, and according to the latest estimates from 2021, This amounts to approximately 20 billion euros annually. that Catalans pay in taxes and that never returns to Catalonia.

This money is largely wasted due to a lack of investment, something that has become evident in recent weeks with the collapse of the rail network. The issue of investment is particularly critical because infrastructure in poor condition reduces productivity and export capacity, but there are other reasons as well, such as the fact that Catalans receive less money from the central government than other autonomous communities in unemployment benefits, since employment is higher in Catalonia than the national average.

But when it comes to the welfare state, the regional financing system is the key. This system ensures that regional governments—the Generalitat in Catalonia—are well-funded, and in Catalonia's case, it also means that, per capita, Catalonia receives far less than it contributes, while some regions that contribute less end up with more funds to spend.

"The issue of financing is vital," says Reyner. The reason is simple: three of the pillars of the welfare state—healthcare, education, and long-term care—are public services under the jurisdiction of the Generalitat. In 2024, the departments of Health, Education, and Social Services accounted for almost €27.6 billion of the Catalan government's €40 billion expenditure, nearly 69% of the final budget, according to data from the Department of Economy and Finance. To this must be added police powers, which, although not strictly part of the welfare state, do play an important role in the quality of life and daily lives of citizens.

Underfunding of the Generalitat, therefore, jeopardizes the quality and scope of these services. new financing agreement presented by the Ministry of Finance It should, in theory, improve the Generalitat's financial situation and, therefore, relieve pressure on strained public services. However, whether this new model will be sufficient—especially in the long term—remains to be seen, and this is questioned not only by the opposition, but also by others. almost all business entities in the country.