Launch of a flagship anti-poverty program in Romania (VMI) Nuts and Bolts of SPL systems in Urban Areas: from Strategy to Delivery Costin Mihalache and Elena Dobre, Chancellery and Ministry of Labor, Family, Social Protection and Elderly, Romania 11 November 2015
Introduction of the VMI Program: Rationale & Context Weaknesses of the Current System: Objectives of VMI Reform: Current social assistance system has not reduced poverty efficiently or effectively, including due to weaknesses in meanstested cash benefit programs GMI, Family Benefits and Heating Benefits (HB) Limited coverage of the poor & modest targeting accuracy for HB program: Only 39% of poor covered for most of year, 61% during the cold season 57% of heating and 33% of family beneficiaries are not poor Public spending low & inefficient due to different eligibility criteria for each program: Small budget: RON 1.4 Bln., or 0.2% of GDP, as of 2014 Small, fragmented means-tested programs High costs for Government to administer and for private citizens to apply Support the reduction in the number of poor Romanians to meet the poverty reduction target of the EU 2020 (reduce the number of poor by about half a million people from 2008 to 2020) Stimulate work, especially among lowincome families, by introducing a benefit formula that offers higher implicit income thresholds for those who work VMI budget twice as much as existing programs Improve the efficiency of the program: Reduce the costs of the system, both to beneficiaries and Government Unify and simplify the eligibility criteria Simplify and modernize the administrative procedures at central, district and local levels
Design of the Consolidated Program (VMI) Current programs Different eligibility criteria & procedures for the 3 means-tested program: Assistance unit (family or household) Equivalence scale: different across programs Formal & imputed income (documentation, exemptions) Asset filters: long Recertification period: different from program to program (3 to 6 months) Co-responsibilities: different from program to program Link with social services: limited Benefit formula and implicit taxation of labor earnings, current MT programs: GMI benefit will top the income of the applicant up to a maximum guaranteed threshold, but 100% marginal tax rate on formal earnings under GMI Benefit level for family and heating benefits: lump sums over income brackets, higher for the poorest Implicit taxation in Family and Heating benefits when income goes across income brackets Consolidated Program (VMI) Unified (single) eligibility criteria & procedures: Assistance unit (family) Equivalence scale: single, close to EU definition Formal & imputed income (documentation, exemptions) Asset filters: short Recertification period: 6 months Co-responsibilities: workfare for work-able, registration for job search, school attendance for school aged children Link with social services: extended Benefit formula and implicit taxation of labor earnings, VMI program: Under VMI, reduced marginal tax rate on formal earnings 50% earnings disregard for formal wage earnings or for imputed agricultural earnings Heating benefit formula decreases monotonically with the per adult equivalent income of the family
Implementation of the VMI Program Regulatory framework: Draft VMI legislation prepared, under review by Government Draft implementation regulations prepared Ex-ante simulation of the VMI program done (expected costs and coverage) Next step: VMI Law to be adopted by Parliament by December 2015 Implementation support/ Plans: Identification of beneficiaries: unique ID with personal identification number, issued/ maintained by the Civil registry Communication/ information / outreach campaign Staff training Upgrades to the Payment/Management Information System during 2015/2016 Expected program launch: January 2017
Performance of Means-tested Programs in Urban Areas Means-tested programs in Romania work equality well in urban and rural areas (re: coverage, targeting accuracy) Due to the use of a comprehensive income test, and relatively high share of formal economy This seem to be different than in countries that are using proxy-means testing to identify the poor, which tend to work well in rural areas and less so in urban areas Urban Rural Q1 Q2 Q3 Q4 Q5 Total Q1 Q2 Q3 Q4 Q5 Total GMI 88 5 7 0 0 100 90 8 1 1 0 100 FA 61 33 4 2 0 100 68 19 7 4 1 100 HB 21 43 19 10 6 100 71 15 4 5 4 100 GMI, FA, HB 59 23 11 4 2 100 83 11 3 2 1 100
Opportunity: Linking VMI beneficiaries with services Links with: Employment services Education and children s health Housing services Social services for vulnerable groups Mechanisms for the provision of services Strong activation component: (i) increased coverage of the in-work poor by exempting a share of the current labor incomes of members of the beneficiary families, both from agricultural and non-agricultural activities; (ii) allowing the local authorities to replace community work with training and life-long learning courses for increasing employability of the beneficiaries. The MSII program includes a component for children from beneficiary families, conditioned, according to the child age, by: (i) participation in the national program of compulsory vaccination, for children aged 0-1 years; (ii) participation in kindergarten with an attendance rate of 100%, with only official certificates from the family physician being accepted for absences, for children 3-5 years; (iii) participation in school, with an attendance rate of 95%, with only official certificates from the family physician being accepted for absences, for children 6-16 years. The MSII program includes a housing component for families living in social housing, besides the heating subsidy targeting low-income families living in their own dwellings. In this way, the MSII program will address the excessively high housing cost overburden rate and prevention of homelessness, especially through evictions. The MSII program will cover a larger proportion of poor population, but also to address better the problems of vulnerable groups.
Challenge: Connecting the indigent poor from marginalized communities Marginalized urban areas are census traks inside municipalities or towns that: (1)have a human capital deficit, (2)have a low level of formal employment, (3)provide inadequate housing conditions. Identified based on the last census data (2011), validated by qualitative work Represent 3.2% of the urban population (marginalized rural areas represent 6.2% of the rural population) Slums or getto like communites The Government has a up-to-date targeting tool to address these pockets of indigent policy with priority Special attention will be given to make sure that all eligible beneficiaries from these areas receive VMI, other entitlements and social services.
ADDITIONAL SLIDES
Coverage of means-tested programs Coverage of the poorest quintile, adjusted for survey undercoverage Coverage Q1: of which: Receives only Receives 2 or Total Q1 this program 3 programs Guaranteed Minimum Income 4.9 13.8 8.7 Income-tested Family Allowances 3.0 15.9 14.0 Heating Benefits 8.4 15.6 23.2 Any of the three above 13.7 61.9 45.9 16.0 Winter months 61.9 Rest of the year 38.7 9
Targeting accuracy of meanstested existing programs Targeting of benefits by quintiles Q1 Q2 Q3 Q4 Q5 Total Family allowances 67 21 7 4 1 100 GMI 90 7 3 1 0 100 Heating benefits 43 31 13 8 5 100 Any of them 76 14 5 3 1 100 *Quintiles of individuals of total income net of HB, GMI, FA per AE (1 for the first person and 0.5 for the other ones) Source: HBS 2013 10