ESPN Thematic Report on minimum income schemes

Transcription

1 ESPN Thematic Report on minimum income schemes 2015 Tomáš Sirovátka & Robert Jahoda October 2015

2 EUROPEAN COMMISSION Directorate-General for Employment, Social Affairs and Inclusion Directorate C - Social Affairs Unit C.2 Modernisation of social protection systems Contact: Emanuela Tassa Emanuela.TASSA@ec.europa.eu European Commission B-1049 Brussels

3 EUROPEAN COMMISSION European Social Policy Network (ESPN) ESPN Thematic Report on minimum income schemes 2015 Tomáš Sirovátka, Robert Jahoda 2016 Directorate-General for Employment, Social Affairs and Inclusion

4 The European Social Policy Network (ESPN) was established in July 2014 on the initiative of the European Commission to provide high-quality and timely independent information, advice, analysis and expertise on social policy issues in the European Union and neighbouring countries. The ESPN brings together into a single network the work that used to be carried out by the European Network of Independent Experts on Social Inclusion, the Network for the Analytical Support on the Socio-Economic Impact of Social Protection Reforms (ASISP) and the MISSOC (Mutual Information Systems on Social Protection) secretariat. The ESPN is managed by LISER and APPLICA, with the support of OSE - European Social Observatory. For more information on the ESPN, see: Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE This document has been prepared for the European Commission, however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet ( European Union, 2016 Reproduction is authorised provided the source is acknowledged

5 Minimum Income Schemes Contents SUMMARY... 5 PART I DESCRIPTION OF MAIN FEATURES OF THE MINIMUM INCOME SCHEME GOVERNANCE ARRANGEMENTS Levels of governance Delivery arrangements Rights-based versus discretionary benefits DESIGN OF MINIMUM INCOME SCHEME Level of benefit Eligibility conditions Conditionality rules Duration Transitions LINKS WITH OTHER SOCIAL BENEFITS AND SERVICES Components covered by minimum income schemes Other means-tested benefits Passport to other services and benefits PART II ANALYSIS OF MINIMUM INCOME SCHEMES ASSESSMENT OF ADEQUACY, COVERAGE, TAKE-UP AND IMPACT Adequacy Coverage Take-up Impact LINKS TO THE OTHER TWO PILLARS OF ACTIVE INCLUSION Inclusive labour markets Access to quality services SUMMARY TABLE REFERENCES

6 Minimum Income Schemes 4

7 Minimum Income Schemes Summary The minimum income scheme (MIS) is managed centrally, with the source being general taxation. The benefits are paid by the labour office, through its contact points, under the same conditions all over the country. Both the entitlement to and the level of benefits are recognised as a right in legislation. Within the MIS, there are three benefits: Allowance for Living, which aims to ensure that basic needs are met; Supplement for Housing, which aims to cover justified housing costs; and Extraordinary Immediate Assistance, a one-off discretionary benefit provided to persons in precarious situations. Local labour offices are given discretion to replace cash benefits with benefits in kind. The Allowance for Living is set as the difference between the amount required for a person or family to live on (the living minimum) and the income of that person or family after deduction of reasonable housing costs. The living minimum and the subsistence minimum are used as the basis for calculation. The amount of the Supplement for Housing depends on the actual costs of housing (up to the level of justified housing costs). The government is authorised (not obliged) to increase the levels of the living minimum every 1 January if the growth in the Consumer Price Index (CPI) for food and personal needs exceeds 5%. Willingness to work is the basic condition for being regarded as a person in material need. Entitlement to MIS benefits is not time-limited. The MIS contains several incentives to work: only 70% of income from gainful activity (and 80% of unemployment benefit) is taken into account. The adequacy of MIS benefits is seemingly good, since it brings those households at risk of poverty close to the poverty threshold, particularly in cases where housing costs are high. On the other hand, this does not apply when housing costs are low. Besides, in some cases, housing costs are not fully covered. The eligibility conditions of MIS ensure quite comprehensive coverage of the population below the national legal threshold of the living minimum, and the scheme is able to protect most of the population at risk of poverty against extreme poverty. The eligibility conditions and non-take-up, however, play a role in terms of the inadequate coverage of those unemployed excluded from Labour Office registers and the homeless. The impact of MIS on reducing poverty (60% median income threshold) is questionable: although the level of social assistance benefits often makes it possible to achieve the poverty threshold, housing costs are sometimes covered from the benefits provided for personal needs (see above). Nevertheless, the overall effectiveness of the Czech benefit system in poverty reduction is relatively satisfactory in international terms. Social assistance/mis benefit recipients who are unemployed (the vast majority of MIS benefit recipients) are obliged to accept any suitable job offer (including temporary work), to agree to fulfil obligations set in an Individual Action Plan (see below), and to participate in and complete retraining or a targeted programme. The Individual Action Plan (IAP), in the form of a contract, must be established with every unemployed person after 5 months of unemployment; in practice, however, individualised support is not systematically implemented because of the workload placed on the job mediators. MIS benefit recipients, who are mostly unemployed, may be included in various active labour market policy (ALMP) measures, but this support is only half the EU average. Incentives to encourage households to improve their income situation through their own initiative (either by moving to a better-paid job or by increasing the number of hours worked) are fairly low and remained almost unchanged in the years The greater the influence of net income from MIS, the lower the incentives, and longterm dependency is widespread. 5

8 Minimum Income Schemes The recipients of MIS have some exemptions regarding healthcare service fees and child care service fees that improve accessibility. On the other hand, access to medical care is limited for those who do not pay health insurance such as the homeless, the unregistered unemployed and self-employed people. A major problem remains a lack of affordable rental accommodation (social housing) and poor coordination between the services. 6

9 Minimum Income Schemes Part I Description of main features of the minimum income scheme 1 Governance arrangements 1.1 Levels of governance Minimum income protection is provided under the Act on the Living and Existence Minimum/Zákon o životním a existenčním minimu (Act No. 110/2006 Coll.) and the Act on Assistance in Material Need/Zákon o pomoci v hmotné nouzi (Act No. 111/2006 Coll.). The MIS is managed centrally. The legislation is adopted at the national level, and regulation, as well as methodical guidance, are also centralised, being in the hands of the Ministry of Labour and Social Affairs (MLSA). The benefits are financed from the central (government) budget and managed by a section of the MLSA, with the source being general taxation. The benefits are paid by the Labour Office, its regional branches and contact points under the same conditions all over the country. These labour office contact points evaluate the situation of the person(s) in need upon his/her request (including social investigation and home visits) and make a decision about granting MIS benefits. Benefits provision is accompanied by social work with the beneficiaries. Municipalities participate in the system by providing social work, in cooperation with labour offices; in particular, they are obliged to share information on benefit recipients (as stipulated in the legislation). 1.2 Delivery arrangements In 2012, social assistance benefits provision shifted from municipalities to local labour offices (Act No. 73/2011 Coll. on Labour Office). From this perspective, local employment offices represent a one-stop shop for the unemployed. Nevertheless, there is still a division of tasks within labour offices, similar to the case prior to the merger with social assistance. Employment mediators (and counsellors) are responsible for dealing with the agenda of unemployment benefits, job mediation and Individual Action Plans. Social counsellors are responsible for the agenda of social assistance benefits. Although they can easily share information with the employment mediators/counsellors (and the intensity of information exchange is increasing), they handle their clients agenda separately. When these agendas were merged, the number of social counsellors was reduced from 3,642 to 1,953 (Úřad práce/employment Office 2014) and the gap has not yet been fully closed. Nevertheless, the situation is slowly improving. Thanks to the increased staff numbers in the social assistance agenda (600 social workers in 2014) it is once again possible to pay home visits to the households of social assistance recipients, in order to verify their entitlement to social benefits, including compliance with the jobsearch requirements. In April 2015, the government decided to increase staff numbers in the social assistance agenda by another 300 employees (that said, it is claimed that a further 800 employees are needed) (MPSV/MLSA 2015a). Labour offices also deliver other non-contributory benefits. Municipalities provide social work and social services, including emergency services (such as shelters). They are typically involved in tackling housing issues, indebtedness, family problems and similar. 1.3 Rights-based versus discretionary benefits The entitlement to assistance in material need (AMN) is based on legal right: the claimant is entitled to the benefit if s/he satisfies the conditions laid down by law (see Sections 2.2 and 2.3 of Part I) and submits an application on a prescribed form. Both the entitlement to and the level of the main benefits are recognised as a right in legislation (fixed criteria). 7

10 Minimum Income Schemes Within the AMN, there are three benefits: Allowance for Living (Příspěvek na živobytí) is a recurrent benefit, provided to a person or a family whose income is inadequate to meet basic needs. Supplement for Housing (Doplatek na bydlení) is a recurrent benefit, provided to a person or a family whose income is inadequate to cover justified housing costs. The benefit is paid separately, however, as part of the overall MIS. These two recurrent benefits are paid monthly if the recipients continue to meet the eligibility conditions. Extraordinary Immediate Assistance (Mimořádná okamžitá pomoc) is a one-off benefit provided to persons in precarious situations. This is the only discretionary benefit. It is provided to persons (on low income) who find themselves in situations that have to be resolved immediately: for example, they face a serious threat to health, there is a serious extraordinary event (a natural disaster, ecological disaster, etc.), there is a risk of social exclusion (for example, they return from prison or some other detention facility), or they lack resources to cover a one-off expenditure, to acquire or repair basic furniture or durables, or to cover justified costs related to the education or special interests of their dependent children. Discretionary benefits represent a rather marginal part of the system: in 2014, on average only 4,000 claimants were granted the benefit each month, with the total amount reaching CZK 146 million (EUR million); 1 meanwhile the Allowance for Living was paid to 162,000 claimants on average, the total amount being CZK 7.9 billion (EUR million); and the Supplement for Housing was paid to 73,000 claimants, with the total amount reaching CZK billion (EUR million) (MPSV/MLSA 2015b). Local labour offices are given discretion to replace cash benefits with benefits in kind: that is, to provide meal vouchers instead of cash or to pay recipients housing costs direct, if there is any suspicion that the recipients would not use the cash benefits properly for the given purpose. 1 The exchange rate on 1 October 2015 is used here. 8

11 Minimum Income Schemes 2 Design of minimum income scheme In the, there is one single minimum income scheme, which includes three types of benefits (see above). 2.1 Level of benefit The Allowance for Living is set as the difference between the amount required for a person or family to live on (the living minimum) and the income of that person or family after deduction of reasonable housing costs (income in the previous 3 months is taken into consideration): the amount required for living is established on a case-bycase basis, based on evaluation of the person s or the family s income, efforts and opportunities; the living minimum and subsistence minimum are used as the basis for the calculations. The benefit is intended only to cover personal needs. The subsistence minimum level (rather than the living minimum level) is applied in the case of those benefit recipients who did not exploit all available possibilities to increase their income through their own actions: this means the use of entitlements to other social security benefits, and all claims and civil responsibilities of maintenance owed to them by other people, and the sale or other exploitation of the claimants own assets. The benefit amount varies according to family composition. The individual amount is determined per individual in the household; the household amount is increased on a sliding scale. The basis for the calculations of the amount related to dependent children is based on the living minimum (Životní minimum); the basis for the calculation of the amount related to adults may be based on the subsistence minimum (Existenční minimum) see Section 2.3 of Part I for the conditions. The monthly amounts of the living minimum have been as follows since January 2012: a single person: CZK 3,410 (EUR 126), first person in a household: CZK 3,140 (EUR 116), second and other persons, not a dependent child: CZK 2,830 (EUR 104), dependent child (under 6 years): CZK 1,740 (EUR 64), dependent child (6 15 years): CZK 2,140 (EUR 79), dependent child (15 26 years): CZK 2,450 (EUR 90). The monthly amount of the subsistence minimum is CZK 2,200 (EUR 81). The amounts of the living minimum for four family types are (in CZK): a single person: CZK 3,410 (EUR 126), a couple: CZK 6,240 (EUR 230), a couple with children aged 7 and 14: CZK (EUR 387), a single parent with a child of 2 years: CZK 5,150 (EUR 190). When these figures are benchmarked against the 60% EU poverty threshold, the amounts of the benefit for those in material need (including the Supplement for Housing, see below) are 67%, 59%, 59% and 81%, respectively. This means that the is not in the group of countries with the most generous MIS (such as Denmark, the Netherlands or Ireland), but is still fairly generous, comparable to Belgium, Germany, France, Finland, Hungary, Italy, Sweden and the UK, and more generous than other post-communist countries or Southern European countries (Bradshaw and Marchal 2015). Similarly, the OECD (2015) compares MIS recipients incomes with median incomes, with the levels being as follows: 46% (single person), 42% (couple), 40% (couple, 2 children) and 38% (lone parent, 2 children). This is more generous than the OECD average in the case of childless households (38% for both singles and couples), and as generous as in the two cases of households with children (40% and 39%). 9

12 Minimum Income Schemes There were some changes during According to Act No. 382/2008 (September 2008), effective from January 2009, entitlements to social assistance were automatically reduced to the subsistence minimum level after 6 months. Only those recipients who took part in a public service programme for at least 20 hours per month could have their benefits topped up to the living minimum level. If they worked for more than 30 hours per month, they could get a bonus of half of the difference between the Living and the subsistence minimum. As of January 2012, the bonuses for participation in public works were cancelled (Act No. 366/2011 Coll.), while public service was made obligatory for all unemployed people after 2 months of unemployment. In November 2012, the obligation was annulled by the Constitutional Court as incompatible with the Constitution (Act No. 437/2012 Coll.). However, the bonuses for participation in public service were not restored. Supplement for Housing tackles those cases where a person s or family s income, including entitlement to the Housing Allowance within the system of state social support, is insufficient to cover justified housing costs. This means that the amount of the Supplement for Housing depends on the actual costs of housing (the level of justified housing costs). The Supplement for Housing is calculated in such a manner as to cover the gap between the payment of justified housing costs and the basic amount required for living. Justified housing costs include rent, housing-related services and energy bills. The idea is that every household should be guaranteed the living minimum after housing costs. There is, however, a ceiling on the supplement to housing costs, corresponding to the normative costs appropriate to the locality. This means that the Supplement for Housing is differentiated according to the actual regional/local housing costs. Sometimes a contribution is made to the cost of private rented accommodation in hostels/shelters (which not infrequently are of substandard quality), up to the level of the justified housing costs (90% of the normative housing costs). The reason is that sometimes no other housing options are available (e.g. municipal housing). Labour offices thus contribute to the high cost of accommodation in substandard shelters (the housing costs are not regulated). This is regarded as unfair business and a misuse of public funds by the accommodation providers, especially as the numbers of recipients, as well as the expenditure, are rapidly increasing (see Table 1). Table A1: Expenditure (per year) and number of benefits (monthly average) between 2008 and 2014 Expenditure (in million CZK) (Number of benefits in thousand) Allowance for living 2,176 2,863 5,910 7,900 (66) (91) (116) (162) Supplement for housing ,673 3,249 (21) (23) (41) (73) Extraordinary immediate assistance Source: MPSV/MLSA (2015b). 146 (5) 334 (9) 168 (6) 146 (4) 10

13 In reaction to this problem, Act No. 252/2014 Coll. the bill was initiated by a member of the Senate set standards for accommodation in private hostels/shelters and charged municipalities with monitoring standards. With effect from May 2015, this was also established as a condition for providing the Supplement for Housing to people living in these hostels/shelters. In June, however, the Minister of Internal Affairs commented on the law, arguing that assessment by municipalities should not predetermine a decision about the benefit. At the same time, the Public Defender of Rights/Ombudsman recommended annulling the decree (Act) and NGOs working with people at risk of homelessness (especially in excluded localities) expressed the fear that thousands of people would lose their accommodation if the act were applied strictly. The Ministry of Labour and Social Affairs then recommended that the labour offices should still grant the benefit, even if the municipality makes a negativeassessment of the accommodation, if they recognise the case to be needy (MPSV/MLSA 2015c). The Allowance for Living and the Supplement for Housing are paid to recipients monthly so long as they continue to fulfil the eligibility conditions. The benefits for all household members are provided to the applicant (who enters the other members of the household on the application form). Extraordinary Immediate Assistance is provided to persons (on low income) who find themselves in situations that have to be resolved immediately. The level of one-off benefits under Extraordinary Immediate Assistance differs according to the situation in question. The maximum benefit is 15 times the subsistence minimum of a single person in the case of a natural disaster; 10 times the subsistence minimum in the case of lack of resources (see above); or 4 times the subsistence minimum if the person is at risk of social exclusion. Supplements are provided to persons with expensive diet regimes (the extra is between CZK 1,070/EUR and CZK 2,800/EUR 103). The method for setting the above amounts is not specified in the legislation, but is a political decision. The MLSA is responsible for making the proposals these are based on analysis of the living costs and housing costs (regionally differentiated). The MLSA also uses analysis by the Research Institute of Labour and Social Affairs (RILSA) when preparing these proposals the last analysis is from Indexing/uprating: according to the legislation (October 2007, Act No. 261/2007 Coll.), the government is authorised (but not obliged) to increase the levels of the living minimum and the subsistence minimum every 1 January if the growth in the Consumer Price Index (CPI) for food and personal needs exceeds 5%. In the event of extraordinary circumstances, the levels can be adjusted sooner. This represents a change over the previous legislation from 2006 (Act on Assistance in Material Need), when the government was obliged to increase the level if the CPI exceeded 5%. In consequence of the changed legislation, the living and subsistence minimum levels were uprated only once between 2007 and 2015: by 9.1% in 2012, when VAT on most consumer goods was increased. 2.2 Eligibility conditions Those entitled to the Allowance for Living and the Supplement for Housing include permanent residents, people who have obtained asylum, migrant workers and their family members (under Regulation 492/2011), EU long-term residents and EU citizens (who do not fall under Regulation 492/2011) after 3 months of residence in the Czech Republic. The Supplement for Housing is provided if the applicant lives in (legally) rented housing or in his/her own accommodation. 2 Compare Vlach et al. (2014). 11

14 Extraordinary Immediate Assistance can also be granted to foreign nationals who stay in the legally and, in serious situations, even to persons residing in the country illegally. The situations specified in the legislation cover persons: who face a serious threat to health, are affected by a serious extraordinary event (a natural disaster, ecological disaster, etc.), are at risk of social exclusion (e.g. if they return from prison or some other detention facility, such as psychiatric/healthcare facility after intensive treatment for addiction or psychic impairment; if they leave a children s home at the age of 18, when they reach their majority; if they are homeless; or if their rights have been placed in jeopardy or they are victims of crime), or who lack the resources to cover a one-off expenditure, to acquire or repair basic furniture or durables, or to cover justified costs related to the education or special interests of their dependent children. Means-related conditions apply to certain property and assets. Real estate used for residential (standard houses and apartments) or professional purposes is not subject to the means test. Nor are the following movable assets taken into account: standard home equipment and devices (including cars) used for work or business activities, cars used for the transportation of children and disabled persons, cash up to CZK 6,300 (EUR ), contractual private pension insurance savings and other savings under a given limit. Income considered in the means test includes: income from gainful activity (after tax and social security contributions), social security benefits (including unemployment benefits), any other regular income (e.g. rent), revenue from capital, any random income (e.g. sale of products, property and claims) and alimony. There is no age limit. According to the legislation, adult children and their parents are considered to be a household if they share accommodation, regardless of whether they really pool financial resources. Relatives who do not live in the household are not considered in means testing. 2.3 Conditionality rules Willingness to work is the basic condition for being regarded as a person in material need. Recipients, unless in employment, must register with the labour office as jobseekers, actively look for a job, accept any (even short-term or poorly paid) employment, participate in active employment policy programmes, including public works or public service, if offered any of these options. Participation in these activities is obligatory and is subject to examination. Refusal means that the person is excluded from the system for 3 months. Certain persons are excluded from the work-activity condition due to age, health status or family situation (those aged 65+, pensioners, disabled people, parents taking care of small children, carers of care-dependent persons, dependent children up to 10 years of age and temporarily ill persons). Another condition stipulates appropriate care for children (this basically means the children must attend school regularly). The claimants have to use all their entitlements to other social security benefits and all claims and civil responsibilities of maintenance owed to them by other people. Similarly, they are obliged to sell or exploit their own assets. When they do not fulfil these conditions, they receive reduced benefits (only up to the level of the subsistence minimum rather than the living minimum). 12

15 2.4 Duration Entitlement to MIS benefits (benefits that fall under assistance in material need) is not time-limited: individuals or families are entitled to the benefits for as long as they meet the eligibility conditions. Until 2012, a household s eligibility for the Housing Allowance (part of the state social support) was also simultaneously an essential precondition of its eligibility for the Supplement for Housing. As of 2012, the period of the Housing Allowance entitlement is limited to 84 months during the last 10 calendar years. Therefore the full impact of this adjustment is expected from Since this adjustment may reduce the entitlement to the Supplement for Housing, the conditionality mentioned at the start of this paragraph was scrapped. The Act on Assistance in Material Need has thus created a softer formulation of the conditions, under which entitlement to MIS benefits is considered in the light of whether the person has claimed state social support benefits. 2.5 Transitions There is no special arrangement for the transition from unemployment-related benefits to MIS benefits with one exception that is described below. The unemployment benefits are provided for only 5 months to people below the age of 50, for 8 months to people between 50 and 55, and for 11 months to people over 55. At the same time, the benefit level is rather low (65% of previous net salary during the first 2 months, 50% during the next 2 months, and 45% during the rest of the set period) and is capped. A person or family may be eligible for assistance in material need and also be eligible for unemployment benefit. After 5 months of unemployment, the Employment Office is obliged to draw up an Individual Action Plan with the unemployed person. Failure to meet the obligations of this individual contract, refusal to participate or refusal to undergo vocational training (without good reason ) implies removal from the register of unemployed persons and loss of entitlement to assistance in material need. Several work incentives are implemented as part of the social assistance system. Their bottom line is the limited inclusion of certain types of income and personal assets in the assessment of eligibility and in the level of the MIS benefits. The following three are the most important: 1) Only 70% of income from gainful activity is taken into account. This measure decreases the effective tax rate on the income of individuals returning to the labour market from 100% to 70%. 2) Similarly, only 80% of unemployment benefit is taken into account. This measure implies that a person receiving unemployment benefit always has a higher disposal income than a person receiving only social assistance benefits. 3) Cars used for gainful activity are not taken into account in means testing to assess eligibility and the level of social assistance benefits. There is one particular feature of the Czech tax system that helps in the transition to employment in the case of the person with the first income in a family with dependent children (either in a single-parent family or during the transition into employment of one parent in a two-parent family where both parents are unemployed). In the Czech Republic, there is a refundable tax credit for children. In 2015, the tax credit was CZK 1,117 (EUR 41.40) per month for the first dependent child, CZK 1,317 (EUR 48.80) for the second child, and CZK 1,417 (EUR 52.50) for the third and each subsequent child. In keeping with OECD (2011) methodology, the refundable tax credit may take the form of a non-refundable tax credit supplemented by a tax bonus (negative income tax). Thanks to the standard tax credit, an individual begins to pay personal income tax only when his/her monthly income exceeds CZK 10,300 (EUR 381). For the dependence of personal income tax on gross income and the composition of the family, see Figure 1. 13

16 Figure 1: Dependence of personal income tax (y-axis) on gross income and the composition of the family (x-axis), monthly, in CZK, 2015 Source: own calculations. A particular feature of the Czech system is that the child tax bonus (CTB) is not counted as part of the income used to determine means-tested benefits. In addition, households may only claim the CTB if the total annual income of the person making the claim is at least six times the monthly minimum wage (half the minimum wage per month). This measure was adopted to encourage labour supply from among lowincome households. 3 Links with other social benefits and services 3.1 Components covered by minimum income schemes As already mentioned above, the Supplement for Housing is a means-tested benefit under the social assistance scheme. It is provided to a family in the event of inadequate income to cover reasonable housing costs. However, the supplement does not cover all the family s housing costs. The actual costs of housing paid by a given family in the previous calendar quarter are taken into account, and they are capped by so-called normative housing costs. The normative housing costs are differentiated according to housing tenure status private (or cooperative) or rented, the size of the municipality (six categories) and the number of persons in the household. The levels of the normative housing costs are set by law (the Act on State Social Support) and are amended once a year. For more on the Supplement for Housing and its relation to the Housing Allowance, see the following section. As was mentioned above (Section 1.3), Extraordinary Immediate Assistance can cover one-off expenditure of persons in precarious situations. This expenditure may take various forms (purchase or repair of basic furniture, extra costs related to education, cost of ID documents, one-time costs associated with natural disasters, etc.). In view of the rather low budgetary cost (see Table 1 in Annex), the impact of this benefit is limited. 3.2 Other means-tested benefits As mentioned above, since 2007 the state has provided two housing benefits. The first is the Housing Allowance (income-tested benefit under state social support) and the second is the Supplement for Housing (means-tested benefit under assistance in material need). Both benefits are based on income in the previous calendar quarter and expenditure related to housing (i.e. rent, housing-related services and energy bills). The amount of the Housing Allowance for a calendar month is calculated as the difference between the justified housing costs (either normative housing costs or 14

17 actual housing costs, whichever is lower) and the household s reference income, multiplied by a coefficient of 0.30 (0.35 in Prague). The Supplement for Housing is determined in such a manner as to ensure that, after payment of justified housing costs, the person or family is still left with an amount corresponding to the living minimum. The Supplement for Housing did not exist before 2007, and entitlement to the Housing Allowance was assessed differently. When the amount of the Housing Allowance was calculated, neither the actual housing costs nor the normative housing costs were taken into account. As a result of the new adjustment to the housing benefits and the growing housing costs, the volume of both benefits paid out, as well as the number of beneficiaries, rocketed between 2007 and 2014 (see Figure 2). Child Allowance is an income-tested benefit set as a fixed amount according to the child s age. Children up to 26 years are eligible if they remain in further education or vocational training, or if the child can neither work nor participate in training for a future occupation on account of serious health reasons. The Child Allowance amounts to CZK 500 (EUR 18.03) for children under the age of 6, CZK 610 (EUR 22) for children aged 6 15 and CZK 700 (EUR 25.25) for children aged Entitlement to the Child Allowance is limited to families with income below 2.4 times the family living minimum. Figure 2: Evolution of Housing Allowance and Supplement for Housing paid (left axis) and average number of beneficiaries (right axis) Source: MPSV/MLSA (2015b). Figure 3 shows the financial situation and the interplay of the above-mentioned benefits in a two-parent family with two children that is dependent on one income from economic activity. The calculation is done for income levels ranging from 0% to 150% of the average wage. The family lives in a rented apartment in Brno (second in size to the capital city). Their actual housing costs are equal to the prescriptive housing costs set out by law. 15

18 Figure 3: Interplay of income-tested and means-tested benefits (left axis) and disposable family income (right axis), using the example of a married one-earner couple with two children (ages 6 and 8), in CZK monthly or as % of average wage Source: own calculations. The last income-tested one-off benefit is the Birth Grant, which is provided for the first and second child in the case of families whose income is lower than 2.7 times the living minimum. The volume of this benefit is expected to have been only CZK 411 million (EUR 15.2 million) in Passport to other services and benefits In general, healthcare is free of charge for all insured persons. The state pays healthcare insurance contributions on behalf of persons in material need. Persons in material need are not exempt from out-of-pocket payments, but these apply only to medicines and medical devices. They do not pay regulatory fees for healthcare and hospitalisation. Besides, most of the regulatory fees were cancelled as from There still exists a regulatory fee for emergency care (CZK 90/EUR 3.30) that is, any medical care (including dental care) provided at emergency care units outside regular opening times. Although the cost of early child education and care is relatively low in the Czech Republic, it may still be too high for households that find themselves in material need. Since this may form a barrier to the use of these facilities, the municipality has the right to reduce these costs for affected households. This applies only to kindergartens established by the municipality. A new law on affordable and social housing is being prepared in the. The law assumes improved affordability of this form of housing for households at risk of poverty and social exclusion. The law should come into effect after

19 Part II Analysis of minimum income schemes 1 Assessment of adequacy, coverage, take-up and impact 1.1 Adequacy The adequacy of MIS for four types of households is shown in the following section. The four model types are: a divorced single person, a one-earner couple, a one-earner couple with two children (aged 7 and 14) and, finally, a divorced single person with a child of 2 years. All these model families live in rental apartments in the capital city of Prague. The table below presents the development of average housing costs of the model households in the Czech part of the SILC survey. As was mentioned in Section 3.2 of Part I, the new adjustment of housing benefits, together with the growing costs of housing connected with the process of rent deregulation, resulted in a sharp growth in housing benefits. Our adequacy calculation model works with the housing costs measured as a fixed percentage of the average wage (see the last column of Table 2), in two variants. The first variant is derived from the development of the average housing costs of selected family types in The second variant assumes the housing costs at a uniform rate of 20% of the average wage (AW), which is the very same method as used by the OECD. Its benefit and wages model assumes that the level of rent for all family types regardless of income level and income source is 20% of the gross earnings of an average worker (OECD 2013, p.5). Table 2: Average housing costs of selected household types living in the rental sector in Prague, according to SILC and the value selected for the model (in % of average wage) Type of the family Selected value (% average wage) Divorced single (rented, Prague) / 20 One-earner couple (rented, Prague) / 20 One-earner couple with 2 children (rent. Prague) / 20 Divorced single with child (rented, Prague) / 20 Other rented, Prague Rented, non-prague Non-rented All Source: CZ-SILC Not applicable Furthermore, the model works with the following model categories of primary earner : a) unemployed without unemployment benefits, b) unemployed with unemployment benefits (in the first 2 months of unemployment the person is eligible for unemployment benefits (UB) at the level of 65% of previous net earnings, which is assumed to correspond to 67% of the average wage in this model), c) employed with earnings corresponding to 35% of the average wage (this is the minimum wage or wage slightly above the minimum wage throughout the period ), and d) employed with earnings at the level of 67% of the average wage. The simulation model calculates the level of taxes, benefits and net income of selected families. We utilise the model for the calculation of derived indicators of adequacy in Section 1.1 (Part II) and labour market incentives in 2.1 (Part II) of this report. The net income of selected families who find themselves in the situation of dependency on only benefits from MIS is outlined in Tables 3 and 4. While higher housing costs ensure a level of income close to the poverty threshold (60% of median income), lower housing costs mean lower net income for the household that is income well below the poverty threshold. It is somewhat paradoxical that the 17

20 probability of a household being at risk of poverty is higher when the housing costs are lower. Table 3: Income of a household on social assistance (no unemployment benefits) compared to the poverty threshold (SILC) of the family (in %) Type of family Housing costs 35/50% AW Housing costs 20% AW Divorced single person One-earner couple One-earner couple with 2 children Divorced single person with child Source: own calculations. While the above example may seem paradoxical from the household s perspective, housing costs do not influence the level of net income. If the household s income is fully dependent on MIS, the residual income (income after housing costs have been paid) should not be higher than the living minimum of the household. On the contrary, when housing costs exceed the value of the normative housing costs (see Section 3.1 in Part I), the residual income of the family may be lower than 100% of the living minimum, and may even be negative (see divorced single-person households in 2008, Table 4). Table 4: Residual income (income after housing costs have been paid) of an unemployed household without UB compared to the living minimum of the family (in %) Type of family Housing costs 35/50% AW Housing costs 20% AW Divorced single person One-earner couple One-earner couple with 2 children Divorced single person with child Source: own calculations. In view of the larger proportion of long-term unemployment in the compared to other EU countries, Tables 5 and 6 below demonstrate a situation that only occurs marginally in practice. They show the financial situation of households that are entitled to unemployment benefits at the level of 65% of previous net income (in this model case, corresponding to gross income of 67% AW after all taxes). The financial situation of households is only slightly better than the above-described situation of full household dependency on MIS. At the same time, it is surprising that when measuring adequacy using either the poverty threshold concept or the living minimum concept, opposing trends could be observed between 2008 and While in the case of the poverty threshold, adequacy deteriorated slightly, it improved when the living minimum concept was applied. This development is mainly influenced by lower uprating of the living minimum (9% between 2008 and 2014) as compared to wage growth, and hence unemployment benefits (14%). Table 5: Income of a household on social assistance (with unemployment benefits) compared to the poverty threshold (SILC) of the family (in %) Type of family Housing costs 35/50% AW Housing costs 20% AW Divorced single person One-earner couple One-earner couple with 2 children Divorced single person with child Source: own calculations. 18

21 Table 6: Residual income (income after housing costs have been paid) of a low-wage household (35% of AW) compared to the living minimum of the family Type of family Housing costs 35/50% AW Housing costs 20% AW Divorced single person One-earner couple One-earner couple with 2 children Divorced single person with child Source: own calculations. The last table in this section shows the net income of households in a situation where the earnings of an employed household member are very low (35% of the average wage this represents the level of the minimum wage, or a salary slightly higher than the minimum wage throughout the period). In such a situation, the MIS provides income at around the level of the poverty threshold. In the case of rental-type housing and higher housing costs, the income is slightly above the poverty threshold, whereas lower costs may be associated with income below the reference level of poverty. However, the residual income amounts to similar levels in both cases, regardless of housing costs (unless they exceed the level of normative costs). Table 7: Income of a low-wage household (35% of average wage close to the minimum wage) compared to the poverty threshold (SILC) of the family Type of family Housing costs 35/50% AW Housing costs 20% AW Divorced single person One-earner couple One-earner couple with 2 children Divorced single person with child Source: own calculations. It should be clear from the previous paragraphs that, given a certain level of gross income, residual household income is higher in the case of lower housing costs (e.g. living in one s own house/flat) than in the case of higher housing costs. At the same time, net household income, which is used as a reference for determining income poverty, may achieve a higher level in the case of households with higher housing costs. We can conclude that adequacy worsened slightly between 2008 and When compared with the poverty threshold (and thus the overall income level), selected households experienced a relative drop in income. It was only in the case of higher housing costs that household incomes improved, particularly due to increased housing benefits. Lower adequacy can be documented by using the residual income (income after paying housing costs) methodology, too. In such a case, the income of the family is determined solely by the living minimum, which grew at a slightly slower pace than the change in the Consumer Price Index over the selected period. 1.2 Coverage The eligibility conditions of MIS ensure quite a comprehensive coverage of the population below the national legal threshold of the living minimum, and the scheme is capable of protecting most of the population at risk of poverty against extreme poverty. Non-take-up, however, plays a role in terms of inadequate coverage (see Section 1.3 below). Some groups may also suffer to some extent from poor coverage due to eligibility conditions. The Czech MIS applies family responsibility: this means 19

22 that adult children (over 18) who share housing with their parents are considered to be part of the household for the purposes of the means test. If in fact they do not get financial or in-kind support from their parents, they may be at risk of poverty. 3 Another group that is not adequately covered are people who have been excluded from the Labour Office registers because they have refused a job offer or did not cooperate fully: they are excluded from entitlement to MIS for 3 months. In 2014, 6,662 unemployed people were excluded from the Labour Office registers for these reasons. 4 A specific group omitted when it comes to Supplement for Housing are people living in rented housing without a contract or written agreement. According to Kocmánková et al. (2014), in practice homeless people generally do not draw benefits because of bureaucratic difficulties and lack of information. Similar problems may be faced by migrants, especially those with a short-residence permit, or agency workers who lose their job but no official data are available. Analysis of the database of MIS benefit recipients, based on data from 2011 (Horáková et al. 2013), has shown that 50.8% of them are single persons, 7.6% are two-adult households, and 41.6% are households with children, of which more than half are single-parent families. About 40% of recipients live in shelters or other forms of non-standard housing. Most importantly, only 10% of recipient households have a member who is a pensioner, and only 13.5% have a working household member; in 84.7% of households there is an unemployed person (in 15% of households there is more than one unemployed person). At the same time, only 5.7% of these households are eligible for the unemployment benefit: this means that the long-term unemployed represent a large majority of beneficiaries, and most of them probably depend on MIS. 1.3 Take-up Oorschot (1995) makes use of two indicators to measure the level of non-take-up. The caseload-based rate measures eligible persons who do not claim the benefit as a proportion of all persons eligible for the benefit. The expenditure-based rate uses the same methodology, but focuses on spending on benefits. According to our report, prepared for the MLSA (Jahoda and Godarová 2013), the following non-take-up levels were observed in the (Table 8). Table 8: Non-take-up of selected benefits in the in 2011 Benefit Caseload-based rate Expenditure-based rate Child Allowance Child Supplement Housing Allowance Source: Jahoda and Godarová (2013). All figures mentioned above were obtained using a micro-simulation model based on SILC 2011 data. The results were challenged by the MLSA, on the grounds that SILC data do not provide enough information to micro-simulate entitlement to benefits. Informal discussions with the MLSA representatives have indicated that politicians prefer to reduce benefits, rather than to highlight the issue of non-take-up. We still believe that the above-mentioned figures provide insight into the volume of non-takeup in the. The results of micro-simulation suggest that greater nontake-up could be expected in households with fewer children, households of pensioners and households that have some income from the labour market. 3 There is no information available on how many live on social assistance with their parents. What we do know is that two-adult households represent about 8% of social assistance recipients (Horáková et al. 2013). Sometimes unforeseen situations emerge, as in the case of an unemployed young person living with a pensioner parent: they should both live on one pension, provided the pension is above the legal poverty threshold (living minimum) for two persons. 4 Data from the MPSV/MLSA web portal. 20