Social Policy : Trends in spending, recipiency and policy focus

Seminar presentation:

Korea Institute for Health and Social Affairs 11 October, 2007, Seoul, Korea

Willem AdemaHead, Asian Social and Health Outreach, OECD

(www.oecd.org/els/social/expenditure)

• What is social spending?

• What is it spent on?

• How do countries compare?

• Who receives social support?

• The impact of the tax system.

• Future policy challenges and options.

Presentation outline

What is social spending?

• The OECD Social Expenditure database defines social expenditure as: – Provision of support (cash, in-kind, fiscal) by public and

private institutions to households during circumstances which adversely affect their welfare.

– Social spending involves compulsion and/or interpersonal re-distribution: payments for services bought at market prices at individual risk-profiles are not social.

– Does not include transfers between individuals and households

What is social spending (continued)?Social policy areas:

• Old age

• Survivors

• Incapacity related

• Health,

• Family

• Unemployment,

• Active Labour Market Programmes

• Housing

• Other contingencies (e.g. low-income)

Recent SOCX-work focused on civil servant pensions, long-term care and family support.

Most spending is on pensions and health care

Public social expenditure, per cent of GDP, 2003

Sweden (31.3)

France (28.7)

Denmark (27.6)

Germany (27.3)

EU-19 (23.3)

OECD (20.7)

United Kingdom (20.6)

Australia (17.9)

Japan (17.7)

United States (16.2)

Korea (5.7)

Cash benefits Services

7.1

7.6

5.6

8.0

6.1

5.9

6.7

6.2

6.1

6.7

2.9

7.4

2.7

6.3

1.9

2.4

2.3

3.2

2.5

1.6

0.9

0.4

0 2 4 6 8 10 12 14 16 18 20

Health

All social servicesexcept health

8.0

12.0

5.3

11.5

8.6

7.1

5.6

3.4

8.2

6.2

1.3

7.4

5.4

8.8

4.8

5.5

4.8

4.7

5.3

1.5

2.2

0.9

02468101214161820

Income support to theworking agepopulation

Pensions (old age andsurvivors)

Public family benefits include cash transfers, (childcare) services and fiscal support

Public spending on family benefits, per cent of GDP, 2003

Public support included here only concerns items that are exclusively for families (e.g. child payments and allowances, parental leave benefits and childcare support). Spending recorded in other social policy areas as health and housing support also assist families, but not exclusively, and is not included here.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Cash Services Tax breaks towards family OECD

Non-health related social spending contributes to reducing poverty across the OECD

Poverty rate and non-health related public social expenditure, per cent of GDP, 2000

Public support included here only concerns items that are exclusively for families (e.g. child payments and allowances, parental leave benefits and childcare support). Spending recorded in other social policy areas as health and housing support also assist families, but not exclusively, and is not included here.

AUS

AUT

CAN

CZE DNK

FINFRA

DEU

GRC

HUN

IRL

ITA

JPN

LUX

MEX

NLDNZL

NORPOL

PRT

SWE

CHE

TUR

GBR

USA

OECD-25

0

5

10

15

20

0 5 10 15Non-health public social spending towards working-age population (%GDP)

Pov

erty

rat

e (%

)

What is public and private social spending?

• In line with the System of National accounts, social spending by General Government (different levels of Government and social insurance institutes) is regarded as public social expenditure.

• Social spending by employers, individuals, and NGOs is private social expenditure:– when legally stipulated, it is ‘mandatory’– Otherwise, it is voluntary private social spending’.

Examples of social benefits

• Public Social Expenditure: – Social insurance support (pensions, unemployment,

medical benefits)– Social assistance support, means-tested livelihood

protection– Benefits for civil servants (except when through

autonomous funds)

• Mandatory Private Social Expenditure:– Employer-provided sick-pay, severance payments

• Voluntary Private Social Expenditure: – Tax advantaged employer-based health plans, occupational

pensions, NGO-provided social services.

Most social spending is publicly financed, especially in Germany, Japan and Sweden…

Public, mandatory private and voluntary private, 2003

United States Germany

30.2%GDP

Japan

21%GDP

Germany Sweden

34.3%GDP

…but private spending plays an important role in Korea, the UK and the USA.

Public, mandatory private and voluntary private, 2003

Japan Korea

8.1%GDP

Korea United Kingdom

27.4%GDP

United States

26.2%GDP

Public

Voluntary private

Mandatory private

Publicly mandated social spending is increasing in most OECD countries…

Publicly mandated social expenditure 1980 - 2003

0

5

10

15

20

25

30

35

Australia France Germany Japan Korea

…but not in the Netherlands and Sweden.

Publicly mandated social expenditure 1980 - 2003

0

5

10

15

20

25

30

35

40

Netherlands Sweden UK US

Recipiency has increased since 1980 but cyclical patterns are clearly visible…

Total recipients of social benefits as a percentage of the population aged 15-64, 1980 - 2004

0

5

10

15

20

25

30

1980 1985 1990 1995 2000 2004

Australia Denmark France Germany Japan OECD-16

…while in Korea, the increase of the social assistance caseload drives the upward trend in

benefit receiptTotal recipients of social benefits as a percentage of the population aged 15-64, 1980 - 2004

0

5

10

15

20

25

30

1980 1985 1990 1995 2000 2004

Korea Sweden United Kingdom United States OECD-16

When considered over the life course, Sweden frontloads investment in families…

0

2000

4000

6000

8000

10000

12000

Pre

-bir

th 0

1

2

3

4

5

6

7

8

9

1

0

1

1

1

2

1

3

1

4

1

5

1

6

1

7

1

8

1

9

2

0

2

1

2

2

2

3

2

4

2

5

2

6

2

7

2

8

2

9

Cash benefits Benefits in kind ALMP spending Education Tax Breaks for Social Purposes

…while the Korean spending profile reflects education spending patterns.

0

2000

4000

6000

8000

10000

12000

Pre

-bir

th 0 1 2 3 4 5 6 7 8 9 10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

Cash benefits Benefits in kind ALMP spending Education Tax Breaks for Social Purposes

Net social spending: Governments claw back money through taxation of benefits and also use

tax systems to provide and stimulate social support

• Taxation of cash payments differs across and within countries and across types of transfers

• Taxation of benefit consumption varies across countries

• Tax breaks that mirror cash payments : some programmes include both elements

• Tax breaks that aim to generate more private social provision.

Income tax and soc. sec. cont. paid over benefit income is below OECD average in non-European OECD countries

0

1

2

3

4

5

AUS GER JPN KOR NLD SWE UK USA OECD-24

Dire

ct ta

xes

in 2

003,

% G

DP on Private transfers

on Public transfers

Direct tax and social security contributions paid over benefit income, per cent of GDP, 2003

Indirect taxation of consumption out of benefit income is higher than direct tax levied

(previous chart) and is highest in Europe.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

AUS GER JPN KOR NLD SWE UK USA OECD-24

On consumption out of public transfers On consumption out of private transfers

Indirect tax paid over consumption out of benefit income, per cent of GDP, 2003

In Germany and the US tax systems play an important role in delivering social support

Tax Breaks with a social purpose (excluding pensions), 2003

0.0

0.5

1.0

1.5

2.0

2.5

AUS GER JPN KOR NLD SWE UK USA OECD-24

% G

DP

TBSPs towards current private benefits

TBSPs similar to cash benefits

Net total social spending levels are similar in across OECD countries…

0

5

10

15

20

25

30

35

AUS GER JPN KOR NLD SWE UK USA OECD-24

pe

r ce

nt

of

GD

P

Private

Public

The story so far

• Public social spending and benefit recipiency are on the rise in most countries.

• Information on the effect of tax systems is needed to improve quality of international comparisons, and are likely to revel reduced spending growth for most European OECD countries.

• Next release of the Social expenditure database in 2008; including net spending and data on recipiency.

• Information on Asia countries that do not belong to the RCHSP may well be included

Public pension spending increased by 1 per cent of GDP from 1990 to 2003 and will increase further…

Source: OCDE (2006), Base de données des dépenses sociales (SOCX, www.oecd.org/els/social/depenses).

0

2

4

6

8

10

AUS DNK F R A DE U J P N K O R S WE G B R US A O E C D

1990 2003

Public spending on pensions, per cent of GDP, 1990 - 2003

…and spending on health and Long-term care has increase even faster over the same period

0

2

4

6

8

10

12

AUS DNK F R A DE U J P N K O R S WE G B R US A O E C D

S ervices for elderly and disabled (2003)Health (2003)S ervices for elderly and disabled (1990)Health (1990)

Public spending on health and services for the elderly and disabled, per cent of GDP, 1990 - 2003

Ageing will exert upward pressure on social spending across the OECD, especially in Korea

Population aged 65 and over, relative to the population aged 20-64, 2000 and 2050

Source: OECD (2007), Society at a Glance: OECD Social indicators.

0

10

20

30

40

50

60

70

80

SWE JPN FRA UK DEU NL USA AUS KOR

2000 2050 OECD-2000 OECD-2050

Korea needs to better use its ‘female capital’ to avoid a shrinking the labour force

Total labour force from 1980 to 2000, and projections from 2005 to 2030, in thousands

‘Constant rates’: assumes constant labour force participation rates for men and women from 2000 to 2030; ’Gender equity in

participation rates’: assumes that female participation rates reach current male participation rates in each country by 2030.

80

90

100

110

120

130

2005 2010 2015 2020 2025 2030

…which could also contribute to higher fertility rates.

1980 Female employment rates, and total fertility rates 2005

AUS

AUT

BEL

CHEDEU

ESP

FIN

FRA

GBR

GRC

IRL

ITAJPN

KOR

NLD

NZL

PRT

SWEUSA

1.0

1.5

2.0

2.5

3.0

3.5

20 30 40 50 60 70Employment rates of women

TFR

ISL

1.0

1.5

2.0

2.5

3.0

3.5

40 50 60 70 80 90

AUS

AUT

BEL

CAN

CZE

DNKFIN

FRA

DEU

GRC

HUN

ISL

IRL

ITA JPN

KOR

LUX

MEX

NLD

NZL

NOR

POLPRT

SVK

ESP

SWE

CHE

GBR

USA

OECD

1.0

1.5

2.0

2.5

3.0

3.5

40 50 60 70 80 90Employment rates of women

TFR

(200

4)

NB Different scales on the horizontal axis of the panels; female employment has increased everywhere

More information

OECD (2007), Social Expenditure database, 1980-2003, www.oecd.org/els/social /pensions, in particular, see the interpretative guide.

OECD (2007), Facing the Future, Korea’s Health, Family and Pension Policy Challenges.

OECD (2007), Pensions at a Glance. www.oecd.org/els/social/pensions