Search for solution to spiralling costs of benefits

Date: 02/11/1995

By Michael Mann

THE European Union must look for common solutions to the problems faced by its overstretched social benefit systems, Social Affairs Commissioner Pádraig Flynn declared this week.

Launching an EU-wide debate on the future of social protection, he stressed that it should not be viewed as a burden or cost for society and claimed that moves towards common solutions were “not an attempt to harmonise social protection in Europe, nor to cut standards”.

Central to the Commission's approach and a key to the achievement of the goals set out in its employment strategy for December's Madrid summit is that social protection measures should promote “active labour market policies”, be more employment-friendly and more efficient.

With benefit systems facing rising demand and tight resources, better targeted actions will put more people onto the labour market, reducing the strain on benefit systems and providing greater resources to finance support measures, the Commission hopes.

Its latest initiative coincides with the publication of a detailed study on the current situation in the member states, suggesting that in Greece, Spain, Italy and Portugal “there is no guarantee of at least a minimum level of income support in all circumstances”.

Flynn pledged “appropriate proposals” at the end of the consultation period in late 1996, saying the Commission would try to involve as many interested parties as possible, including the consultation group of social security director-generals and EU social partners.

Although benefit systems throughout the Union share common goals, the Commission found large differences in the scale of protection provided, access to earnings-linked benefits and the extent of means-testing.

The Scandinavian countries were found to extend benefits to all citizens as of right. In the UK and Ireland, flat-rate payments are the norm and much use is made of means-testing. A group comprising Germany, Austria, France and the Benelux favour the insurance principle, mainly earnings-related. For the four Mediterranean countries, attempts to introduce universal systems have been recent and remain fragmentary.

Expenditure on social protection is higher in the northern member states, ranging from over 30&percent; of GDP in Scandinavia to 16.5&percent; in Greece in 1993.

But spending is continuing to rise inexorably throughout the Union. Between 1990 and 1993, it rose by about 3&percent; in seven member states, and the situation will only worsen as the percentage of the population receiving pensions continues to rise in the next 20 years.

Although contributions remain the overwhelming source of financing throughout the EU, the Commission found a general shift towards the use of tax revenue.

Most member states have taken measures to ease the budgetary burden of social protection measures by tightening the rules on eligibility, increasing targeting and privatisation of benefit provision, and introducing active employment measures.

Old-age pensions remain by far the largest element of spending in all member states except Ireland, accounting for an average of 43&percent; of spending in 1993. Healthcare accounted for 24&percent;, invalidity benefits 9&percent; and unemployment benefits just 7&percent;.

Although it admits the difficulty of comparing rates of unemployment benefit with take-home pay when in work, the report concludes that the unemployed in Greece, Ireland and the UK receive comparatively less than in other member states. The most generous payments were found to be in France, Luxembourg and Portugal.

Social protection for the self-employed was found in many cases to be less generous than for salaried employees.

But the Commission was not able to conclude how effective benefit systems were “in providing support and assistance to those in need”.

Themes for the debate on the future of social protection will include making support “employment-friendly”, ideas on how to finance benefits and the likely impact of demographic changes.

The Commission suggests a more systematic exchange of experience between the member states and discussion of how social security bodies and insurance companies can co-exist in the internal market. It will also look at the co-ordination of social security schemes for people moving within the Union.