Joint Report on Social Protection and Social Inclusion 2010

Transcription

1 MEMO/1/62 Brussels, 4 March 1 Joint Report on Social Protection and Social Inclusion 1 What is the Joint Report and what does it cover? The Joint Report reviews the main trends in social protection and social inclusion across the EU and at national level. It is the outcome of a process involving the European Commission and the Council. A central role in preparing the discussion in the Council on the annual Joint Report is played by the Social Protection Committee. The Treaty-based Committee promotes cooperation between Member States and with the Commission in the framework of the Open Method of Co-ordination on social inclusion, health care and long-term care as well as pensions. The 1 report draws on the lessons of the crisis and from a decade of EU strategy for growth and jobs to reflect on the social policies that are needed to ensure a lasting recovery while also helping to address long-term structural challenges. The EU's system of common objectives, assessment and reporting for social protection and inclusion the 'open method of coordination' operates in tandem with the EU Strategy for Growth and Jobs. The Joint Report on Social Protection and Social Inclusion is presented to EU leaders and feeds into the conclusions of the Spring European Council. What has been the social impact of the economic crisis so far? Strong policy intervention and the automatic stabilisers embedded in European welfare systems have limited the economic and social impact of the worst recession in decades. Social expenditure is expected to rise by 3 percentage points of GDP between 7 and 11. However, the human cost of the crisis is difficult to fully evaluate as yet. The impact on labour markets and on the population, notably the most vulnerable is still unfolding. Unemployment in the EU reached 9.6% in December 9 and the Commission forecasts that it might rise further to 1.2% by the end of 1. The rate is more than double for young workers (21%) and migrants (19.1%). With 4.6 million more unemployed than out the outset of the crisis, many households have seen their income drop and are more exposed to the risks of poverty and over-indebtedness. The loss of earnings affects all family members, and especially children and other dependants. Young people are particularly affected by the lack of job opportunities. Unemployment rates may stay high for some time, with the attendant risks of long-term unemployment and exclusion. In the context of the joint social monitoring of the crisis, countries reported growing numbers of unemployment benefit recipients during 8 and into the fourth quarter of 9. Countries also reported strong increases in the numbers of social assistance claimants in the second and third quarters of 9. The pressure on last-resort schemes depends both on how strongly the crisis hit the different countries, and on the varying coverage and duration of unemployment schemes. 1

2 According to a Eurobarometer survey conducted in the autumn of 9, citizens perceptions are that the economic crisis has a serious impact on their lives. About one fifth of Europeans say their households are facing financial difficulties and a similar percentage say that, on occasion, they have had no money to settle ordinary bills or to buy food in the last 12 months. Economic and employment growth did not help reducing poverty overall In 9, the SPC looked back at 1 years of Lisbon strategy for growth and jobs 1 in order to draw lessons for the future EU strategy. One of the main messages is that there is no trickle down: despite economic and employment growth, the original objective of reducing poverty significantly was not met. EU harmonised poverty trends that are now available show that at EU-25 level, the at-risk-of poverty rate stagnated at 16% between 5 and 8. Over the period both children and the elderly experienced risks of poverty by 3 percentage points higher than the overall population. In-work poverty at EU level also remained stable at 8%, while the risk of poverty of the unemployed rose significantly during the period from 39% to 44%, mainly due to an increase in the old Member States. Changes in the characteristics of the unemployed and changes to the unemployment benefit schemes (increased conditionality, shortened duration) aimed at making work pay may explain this increase. Figure 1a: At-risk-of-poverty rate 2, total, by age and by employment status; EU All Children Elderly Employed Unemployed Source: SILC 5-8 When looking at the old Member States (EU-15) and the Member States who joined in 4 (NMS1) separately, the data shows that in the EU-15 the elderly (65+) are at higher risk of poverty than both children and working age population (% against respectively 18% and 15%). This relation remained stable over the period. On the contrary, in the NMS1 the elderly experienced much lower risks of poverty than children and the working age population (8% against 25% and 17% respectively). 1 SPC(9). "Growth Jobs and social progress: a contribution to the evaluation of the social dimension of the Lisbon Strategy" 2 The annual national at-risk-of poverty threshold is set at 6% of the national median income per equivalent adult. The total household disposable income is the total net monetary income received by the household and its members, i.e. all income from work, private income from investment and property, all social transfers received directly including old-age pensions, net of any taxes and social contributions paid. Indirect social transfers, loan interest payments, transfers paid to other households, receipts in kind and imputed rent for owner-occupied accommodation are not taken into account. The income reference period is 7 for all countries except the UK (8) and Ireland (last twelve months). The income per equivalent adult is calculated by dividing the total household income by its weighted size (1. to the first adult,.5 to other 14+, and.3 to <14). 2

3 Figure 1b: At-risk-of-poverty rate, total, by and by employment status; EU-15 5 NMS All Children Employed Elderly Unemployed All Children Employed Elderly Unemployed Source: SILC 5-8 Has the crisis had the same impact across EU member states? The scope, magnitude and effects of the crisis vary greatly across the Union. Large drops in GDP triggered dramatic rises in unemployment in some countries, while in others job losses were contained. The capacity of EU welfare systems to address the rising demand for social security also varies. Some Member States have major holes in their safety nets, and not all governments have the financial room for manoeuvre to let automatic stabiliser function fully. Members States policy responses also varied in size and emphasis. A Commission estimate shows that spending on overall recovery measures varies from less than 1% of GDP in HU, LT, BG and EL to more than 3.5% in Spain, Finland and Germany. According to the Autumn Commission economic forecast, social expenditure in the EU is expected to increase by 3.2 percentage points of GDP between 7 and 1. The need to contain the rise in public spending calls for enhancing the quality of intervention, and setting clearer priorities. This means more effective and efficient social inclusion and social protection, in line with the principles of access for all, adequacy and sustainability. Do all member states enjoy the same level of social protection? What are the consequences? The size and structure of social protection varied greatly, as illustrated in Figure 1. Bulgaria, the Baltic States and Romania devote less than 15% of their GDP to expenditure on social benefits, while France and Sweden spend 28% of their GDP. Social protection plays a redistributive role over the life-cycle, notably through pensions, insuring people against social risks and helping reduce poverty. 3

4 Figure 2: Expenditure on social protection benefits - gross, by function, in % of GDP Old age and survivors Disability Unemployment Sickness/Health care Family/Children Housing and Social exclusion n.e.c eu27 lv ee ro lt bg sk ie pl mt cz cy lu es si hu pt gr fi uk it de nl at be dk fr se Source: Eurostat ESSPROS 7 Generally, richer countries spend a larger share of their GDP on social protection, and periods of economic growth had allowed many governments in the EU to devote more resources to social policy intervention. However, countries with similar levels of social spending achieve very different results in terms of poverty reduction. In some cases public transfers allow a drastic reduction of the poverty risk (up to 6% in some Nordic countries and Hungary). In other cases this impact is below 15%. This is because the pre-transfers level of poverty, composition of expenditure and quality of interventions also play an important role. This highlights the potential for efficiency gains in social spending. Active inclusion strategies combining income support, access to the labour market and quality services have been identified as effective poverty reduction strategies. They can reconcile the goals of fighting poverty, increasing labour market participation, and enhancing efficiency of social spending. 4

5 How many Europeans are at risk of poverty? In 8, 17% of the EU population was at risk of poverty, living on less than 6% of the national median income. The aggregate figure hides marked differences across Member States, ranging from 9-12% in the Czech Republic, the Netherlands, Slovakia, Denmark, Hungary, Austria, Slovenia and Sweden to -26% in Spain, Greece, Lithuania, Bulgaria Romania and Latvia. These differences result from varying levels of solidarity and labour market inclusion across EU countries. Being at risk of poverty relates to very different living standards across the EU, as illustrated by the large differences in the levels of poverty thresholds apparent in figure 2 (right axis). Even when corrected for differences in the cost of living, poverty thresholds are five times higher in the UK at the top of the ranking after Luxembourg than in the two countries at the bottom (Romania and Bulgaria). Material deprivation rates complement the picture given through the at-risk of poverty rates by providing an estimate of the proportion of people whose living conditions are severely affected by a lack of resources. This new indicator, adopted by the SPC in 9 is a headcount of the number of people who cannot afford to pay their rent, mortgage or utility bills, keep their home adequately warm, face unexpected expenses, eat meat or proteins regularly, go on holiday, or cannot afford to buy a television, a washing machine, a car or a telephone 3. 17% of Europeans live in these difficult conditions. However, in Bulgaria, Latvia, Hungary, Poland and Romania more than % of people are affected. These disparities in material deprivation rates reflect the large differences in GDP per capita that remain between EU countries. This emphasizes that the fight against poverty in the EU will benefit from greater economic growth as well as from greater territorial cohesion within the EU. 3 The indicator recently adopted by the social protection committee measures the percentage of the population that cannot afford at least 3 of the 9 items quoted above. 5

6 Figure 3: At-risk-of poverty and material deprivation rates (%) and at-risk-of-poverty thresholds ( -PPS per year for a single household); At-risk-of-poverty rate (left axis) Material deprivation rate (left axis) Value of thresholds for a single household (right axis) % of total population In Purchasing Power Standards 1 EU EUNMScz nl sk se dk at si hu lu fr fi be de mt ie cy pl pt uk ee it es el lt bg ro lv Source: EU-SILC (8). Material deprivation data for Denmark refers to 7 What does the report reveal about housing exclusion? 9 was the focus year on homelessness and housing exclusion within the social OMC. Work in this context revealed that the shortage of adequate housing is a long-standing problem in most European countries. With the crisis and rise in unemployment, some countries also reported more defaults on housing loans and repossessions. The cost and quality of housing is an important element of living standards. 38% of people at-risk of poverty spend a very large share (i.e. more than 4%) of their disposable income on housing as against 19% of the overall population. People at risk of poverty also tend to face worse housing conditions than the rest of the population with over 27% living in overcrowded accommodation (as against 15% of the overall population). 38% are suffering from at least one housing deprivation problem (against 22%). Recent national data on rough sleepers and on people without accommodation give a mixed picture, but show that the situation has worsened in a number of countries. 6

7 Figure 4: Share of housing costs in total household income net of housing allowances poor non-poor Total 1 EU25 SI MT ES LU IE PT CY FI FR AT EE IT LT LV SE BE HU CZ Source: EUROSTAT; EU-SILC 7 Notes: data on DE omitted because key components of the housing cost variable are missing. PL SK EL UK DK NL Have pensioners been hit by the crisis? Cushioned by the steady incomes from pension systems today's pensioners have been relatively little affected so far. Still, the crisis and lower growth prospects are likely to impact on all types of pension schemes and aggravate the ageing challenge. Moreover, though the bulk of pension income will continue to be provided by public pay-as-you-go schemes pension systems are changing and the entitlements of future retirees will be more sensitive to the volatilities of financial and labour markets. Will future pensioners be more affected by developments in the labour markets? As the role of funded pensions grows and public pensions increasingly will be based on lifetime earnings-related contributions, future pension adequacy will rest on a combination of returns in financial markets and the ability of labour markets to deliver opportunities for longer and less broken contributory careers. Variations in the ability of funded schemes to weather the present crisis show that differences in design, regulation and investment strategy matter. Long-term unemployment and other interruptions in normal earnings can negatively affect the accrual of entitlements and reduce individual pensions. Given this, opportunities should be provided for people to extend their working lives and minimise employment interruptions. At the same time a better balance for pension savers between security, affordability and returns also needs to be achieved. In 7, the employment rate for older workers in the EU-27 was 45% compared to 37% in 1, and 12 countries now exceed the 5% target (Denmark, Germany, Estonia, Ireland, Cyprus, Latvia, Lithuania, the Netherlands, Portugal, Finland, Sweden, and the UK). However, the target is still far away for a group of countries where the employment rate for older workers is around %. When a number of Member States consider increasing the pensionable age in the wake of the crisis it is primarily to restore a balance between working years and years spent in retirement. 7

8 Figure 5: Employment rates of older workers (55-64) in the EU-15 (1992-8) and the EU-27 (1997-8) 6 55 eu27 eu27 (male) eu27 (female) eu15 eu15 (male) eu15 (female) Source: Eurostat What are the potential effects of the economic crisis on health? Data on the health impacts of the crisis are still sparse, but experience shows that downturns increase risks to mental and physical health and that negative effects can emerge over time. Health status is influenced by the extent and duration of economic and social deterioration. Indirect effects may come as budget constraints make it difficult to respond to rising healthcare needs. A sudden increase in insecurity is a stress factor affecting the population at large. Job uncertainty, restructuring and long-term unemployment significantly affect mental health, are linked to suicide, alcohol and drug abuse, increase the risk of cardiovascular disease and impact on mortality. Moreover, lower household income can delay and inhibit recourse to care. This underlines the need to promote labour market inclusion in order to prevent health risks. Why is more effectiveness and efficiency needed in healthcare? In general, healthcare expenditure represents a significant share of Member States financial resources. On average, Member States spend about 9 % of GDP on health, including both public and private outlays, which varies from 5% in Estonia to 11% in France. Average expenditure has grown by about 1pp of GDP over the past decade. A large part comes from public sources (EU average of 75 %). The size and growth of health costs have prompted calls for health systems to obtain better value for money. And with increasing needs and tighter budgets following the crisis improving effectiveness and efficiency take on a new urgency. Public budgets in most Member States are likely to be constrained for years, calling for prioritisation and greater effectiveness and efficiency. 8

9 Total, public and private expenditure on health as % of GDP, 7 or latest available % of GDP 12, 1, 8, 6, 4, 2,, EU27* BEBG CZ DK DE EE IE EL Private expenditure as %of GDP Public expenditure % GDP ES FR IT CY LV LT LU HUMT NL AT PL PT ROSK SI FI SEUK Public expenditure as % of total expenditure on health % of total expenditure on health Obviously expenditure is driven by a complex set of factors. Key structural drivers include new technologies, rising expectations, the increase in unhealthy behaviours and notably population ageing. According to the 9 EPC/EC projections, EU public health expenditure will rise by 1.7 percentage points of GDP by 6 due to population ageing, i.e. a 25 % increase with respect to current spending. These costs however can be halved by improving the health status of the elderly (i.e. postponing the onset of disease). Differences between schemes in terms of expenditure and relative prices therefore prompt questions about financing, delivery structures and priorities (e.g. on prevention versus treatment). It is crucial to understand where potential effectiveness and efficiency gains can be made and greater value for money may be attained. But the health sector also holds great potential for job creation, vital to strategies for returning to sustainable growth and employment. Along with long-term care it accounts for nearly 1% of total employment, and with an ageing population demand for health and social services will grow. 9