Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

2

Contents Introduction

3

Child allowance

5

1.1.

Child allowance beneficiaries and funds

5

1.2.

Influence of child allowance on post-transfer poverty

7

1.3

Focusing (targeting) child allowance funds

11

Social assistance

13

2.1

Permanent social assistance

13

2.2

Permanent social assistance beneficiaries

22

Findings and recommendations

24

3.1

Child allowance

24

3.2

Social welfare (permanent social assistance and allowance for support and care)

25

1

2

3

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

Introduction The social safety net role is significant from the aspect of income support and social inclusion of persons or groups faced with poverty and social exclusion risks. We will limit our analysis to the safety net in the narrow sense (secondary safety net) i.e. those programmes which are selective and focused on certain groups at risk or groups in the most unfavourable social position. Accordingly, further analysis will be limited to the child allowance programme and social assistance.

Eligibility and amount of child allowance in Croatia depend on the amount of available household income (income census). Child allowance may have three functions: 1) mitigating or preventing child poverty, 2) stimulating the pronatality policy, and 3) increasing the quality of life for families with children. Our interest in this report will focus primarily on its first function.

The social welfare system consists of a number of allowances and services. We will focus our attention on two programmes: permanent social assistance and allowance for assistance and care. Permanent assistance is a programme of general social welfare, intended for all citizens whose income is below a certain minimum income threshold, and its purpose is to fulfil basic needs. On the other hand, allowance for assistance and care is intended for persons who, due to advanced age, physical or mental disability or permanent changes in their health, require permanent assistance and care of another person, as they are unable to fulfil their basic needs.

What the mentioned social welfare programmes and child allowance have in common is the eligibility, determined within these programmes by an assets/income status (means test). Child allowance is based on verification of family (household) income (income test), while eligibility for the abovementioned social welfare programmes is additionally based on income verification (income test) and assets verification (assets test).

The existing financial and economic crisis has had a negative influence on economic growth and market conditions, which means that the number of people who will not be able to earn adequate income based on their work (due to unemployment or wage cuts) is on the increase. The economic crisis also implies the social crisis.

This is why the role of social protection programmes is significant, as it provides income support to those individuals who are in an unfavourable position on the labour market, who have left the labour market or are not in it. Families with children or large families definitely represent a vulnerable group in the existing circumstances.

It is furthermore certain that more working-age people will seek refuge in the social welfare programmes due to unfavourable conditions on the labour market.

The purpose of this report is to indicate trends among child allowance and social welfare beneficiaries, the distribution of funds within these programmes and to propose certain reallocation measures or a more rational usage of funds in order to mitigate poverty and negative consequences of the crisis.

3

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

Concrete report goals are as follows: (1) To determine trends among child allowance beneficiaries, starting with the recent changes in legislation.

(2) To analyse the influence of child allowance on household budgets of different types of families and to assess the role of child allowance in the reduction of child poverty, according to different characteristics of children.

(3) To assess the efficiency of the existing family income verification within the child allowance system, or to identify errors of inclusion and exclusion.

(4) To analyse trends among the number of beneficiaries of permanent assistance and allowance for assistance and care, and to explain the relations and connections among these two social welfare programmes.

(5) To break down the structure of permanent assistance beneficiaries and to identify the profile of unemployed working-age beneficiaries of this allowance.

(6) To create simulations on the influence permanent allowance has on the traps of poverty and unemployment, and to stimulate labour and social integration.

(7) Based on the analyses and results obtained, to propose measures to rationalize funds and increase efficiency of the child allowance and social assistance system, by taking into consideration the answer to the existing economic crisis.

Analyses and assessments in this report will be based on data from ministries and services which gather data on child allowance and social welfare on a regular basis (Ministry of Health and Social Welfare – MHSW, Croatian Pension Insurance Institute - CPII) and those from the Household Budget Survey (HBS) from 2008, conducted by the Central Bureau of Statistics (CBS).

4

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

5

1. Child allowance 1.1 Child allowance beneficiaries and funds A significant increase in the number of children obtaining child allowance occured in 2001 (Figure 1), after the Child Allowance Act entered into force in October 2000, whereby eligibility for child allowance was extended to all children regardless of employment status (prior to this, only children of employed parents were entitled to this right). Income census still determined eligibility for child allowance. Already in 2002, the number of children receiving child allowance declined for more than 50,000, due to a change in the base rate for the allowance calculation. Instead of the average net wage, as of 2002 income censuses for child allowance were determined on the basis of the budget base rate (the amount of this base rate is arbitrarily determined by the Croatian Government and did not change from 2001). After the trend of a declining number of children using child allowance in the period from 2001 to 2006, as of 2007 and 2008 the number of children- allowance users settled around 430,000. The gradual decrease in the number of beneficiaries following 2001 can be a result of two factors: greater number of children exiting than entering the system of child allowances (due to passing the age threshold) and the increase of income of households with children (taking into account that income census did not change since 2001).

Figure 1: Number of children using child allowance and its average monthly amount 600.000 342 500.000 400.000

348

350

350

295 258

255

255

258

300

261

227

250 200

300.000

150

No. of children

403.428 I-VI/2009

431.701 2008

429.886 2007

410.938 2006

439.616 2005

462.915 2004

487.627 2003

494.371 2002

546.200 2001

2000

0

377.743

200.000 100.000

400

100 50 0

Average child allowance in HRK

Source: CPII

The average sum of the child allowance did not change significantly from 2001 until 2007, due to the unchanged budget base rate and its lack of adjustment to the rate on increase in living costs or any other parameters. A significant increase of the child allowance average amount in 2007 (for about 31% in relation to 2006) is a result of the previously mentioned changes in income censuses and of the introduction of pronatality bonus.

In 2008 and in the first half of 2009, the average child allowance amounted to HRK 350. After 2003 the overall annual funds for child allowance amounted to approximately 0.5% - 0.6% of GDP (Figure 2), which is not insignificant, since total permanent assistance funds in the same period were between 0.25% and 0.12% of the GDP. In comparison with 2006, the total funds for child allowances in 2007 and 2008 were increased on a yearly basis by about half a billion HRK.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

6

Figure 2: Allocations for child allowance (as a % of GDP) 0,8%

2.000 1.800

0,7% 0,6%

1.600

0,7%

0,6%

1.400

0,5%

0,6%

0,5%

0,5%

0,5% 0,5%

1.200

0,4%

1.000 800

0,3%

600

Amount of resources (in HRK 000,000)

I-VI/2009

846

1.874 2008

1.878 2007

1.359 2006

1.435 2005

1.509 2004

0

1.600

200

0,2%

2003

400

0,1% 0,0%

Share for CA in GDP

Source: MF

According to data for October 2009, among parents and guardians receiving child allowance, most are employed (approximately 60%), followed by the unemployed (28%), pensioners (8%), tradesmen (3.1%) and farmers (1.4%). From the total number of children receiving allowance, 3.3% have one parent, and 0.7% have no parents. Children with severe disabilities and children of Croatian veterans who were killed are missing or prisoners of war (POW) are eligible for the allowance regardless of the income census. In October of 2009, among children receiving the allowance, 3.6% had severe disabilities, and 0.2% children were those of Croatian veterans who were killed, imprisoned or missing (table 1).

Table 1: Children receiving the allowance regardless of the income census (October 2009) Children with severe disabilities Number of children Share (%) in the total number of children

Children of Croatian veterans who were killed, POWs or missing

13,622

901

3.6%

0.2%

3,050,304.41

68,857.59

2,3%

< 0.1%

receiving allowance Monthly amounts (in HRK) Share (%) in total funds for child allowance

Source: CPII

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

7

1.2 Influence of child allowance on post-transfer poverty Child allowance, along with the pronatality bonus, may influence the well-being of families with children and mitigate their poverty. Regular monthly child allowance (HRK 200-300) amounted to 4% and 6% of the average salary in 2008, while maximum child allowance plus the pronatality bonus (HRK 300 + 500) for the third or fourth child amounted to 15% of the average salary.

The analysis of the child allowance share in the overall net household income, shows that funds for child allowance on average amount to 1/10 of the household income in households receiving it (Figure 3). It is also clear that the share of child allowance funds increases in the overall household income with the number of children.

A significant difference exists between families with one or two children on one side and families with three or more children (who, in addition to child allowance, also receive the pronatality bonus). Child allowance and pronatality bonus amount to 15% - 32% of the household budget in families with three or more children.

Figure 3: Child allowance share in the overall net household income* (2008) 35,0%

31,8%

30,0% 25,0% 20,1% 20,0% 14,7% 15,0% 10,3% 10,0%

6,5%

7,3%

5,0% 0,0% All households with CA

Households with 1 child

Households with 2 children

Households with 3 children

Households with 4 children

Households with 5 or more children

* Only households receiving child allowance Source: author’s calculations based on HBS

One of the possible means of analysing the child allowance influence on the mitigation or reduction of poverty is the comparison of poverty rate before and after child allowance was included in total income (a comparison of the so-called pre- and post-transfer income). The child allowance or other financial assistance paid to individuals or families by the state are also commonly referred to as ‘social transfers’. Accordingly, in this case the pre-transfer income includes net household income without the child allowance, while the post-transfer income refers to the total household income, including child allowance. This allows for establishing to what extent child allowance reduces the poverty rate in the absolute or relative amount. The concept of “equivalent income” was used in analysing the influence child allowance has on mitigating poverty. The total net household income was transformed into equivalent income, by using a modified OECD II scale. With scales of equivalence, it is possible to express the number of household members as the number of “adult equivalents”. The modified OECD scale assigns coefficient 1 to the main adult in the household, coefficient 0.5 to other adults older than 14, and 0.3 coefficient to children younger than 15. In other words, a household consisting of two adults and two children would have 2.1 adult coefficients. The equivalent household income is calculated by

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

8

dividing the overall monthly income with the sum of coefficients assigned to each household member. Finally, each household member is assigned the same equivalent income. Moreover, in order to assess the influence of child allowance on poverty reduction, it is necessary to define the poverty line. Poverty in this report is measured based on the concept of relative poverty, and the official EU poverty line, defined as 60% of the median national income.

Data pertaining to 2008 (Figure 4) indicate that child allowance reduces the general poverty rate in the absolute amount by 4,1 percentage points. In other words, the poverty rate of the overall population was reduced for slightly more than 8%. On the other hand, the influence of child allowance on reducing the relative poverty rate is significantly higher in regards to children. Thanks to child allowance, the relative poverty rate among children was reduced by 4.1 percentage points or for more than 22% in 2008.

Figure 4: Changes in relative poverty rates (overall population and children*), 2008 25 20

17,2

18,1 15,8 14

15 10 5 0 -5

All (before CA)

All (after CA)

-1,4

-8,1

Absolute change

Relative change

Children (before CA)

Children (after CA)

-4,1

-22,7

Absolute change

Relative change

-10 -15 -20

*Children: 0-15 and 16-18 in education Source: authorâ&#x20AC;&#x2122;s calculations based on HBS (equivalent income; modified OECD equivalent scale)

The influence of child allowance funds on the reduction of child poverty rate depends on the characteristics of children and their households (table 2). The relative poverty reduction rate increases with the number of children. Child allowance reduces child poverty the most in households with four children (for more than 45%).

This is not surprising since this type of household is eligible for a maximum amount of pronatality bonus (the pronatality bonus amount remains the same for households with five or more children).

Likewise, poverty reduction rates vary depending on age of the children. The reduction rate is the lowest in the oldest child group (16 to 18 years old). Moreover, post-transfer poverty rates for older child groups (school-age children) are higher than poverty rates for younger children (preschool-age children).

The poverty reduction rate is the lowest among children from households without employed adults. Child allowance without income from work (employment or self-employment) generally can not contribute significantly to the improvement of a childâ&#x20AC;&#x2122;s material status.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

9

Table 2: Changes in relative poverty rates by child characteristics* (2008) Poverty rate before CA

Poverty rate after CA

Absolute

Relative

change

change

Number of children 1 2 3 4 5+

11.4 14.1 25.2 38.7 42.4

11.0 11.3 18.9 21.1 31.5

-0.4 -2.8 -6.3 -17.6 -10.9

-3.5 -19.9 -25.0 -45.5 -25.7

Age of children 0-3 4-6 7-10 11-15 16-18

14.4 18.1 18.1 20.0 17.7

11.3 10.8 13.9 15.2 15.4

-3.1 -7.3 -4.2 -4.8 -2.3

-21.5 -40.3 -23.2 -24.0 -13.0

Number of persons employed in a household 0 1 2 3+

69.7 23.4 8.6 7.3

63.4 16.5 6.2 4.4

-6.3 -6.9 -2.4 -2.9

-9.0 -29.5 -27.9 -39.7

*Children: 0-15 and 16-18 in education Source: authorâ&#x20AC;&#x2122;s calculations based on SHS (equivalent income; modified OECD equivalent scale)

Poverty rates alone are not telling of the character or depth of poverty. It is important to analyse how far certain groups of poor children are from the poverty line. We will use an average poverty deficit or poverty gap for this purpose. Poverty deficit indicates the number of percentage points for which an average income of the poor or of a certain disadvantaged group is below the poverty line. The poverty gap is the average proportional poverty deficit of the entire population (in this case poverty gap for the non-poor equals zero) and indicates how much financial resources need to be utilized to lift the poor out of poverty.

First, the average poverty deficit of children does not differ significantly from the average deficit of the overall population (table 3). This is understandable, since children share the living standard as do the adults in their household. The average income of poor children is below the poverty line for approximately 28%. This means that the average monthly income of households with poor children is HRK 600 lower than the poverty line. In general, and with some exceptions, relative poverty of children in Croatia for the most part is shallow. However, the size of this deficit depends on the number of children and their ages, and on the number of employed adults in the household. Regardless of the fact that child allowance reduces poverty the most among families with four or more children, these families still indicate the highest poverty rates, even with child allowance.

Differences in the average poverty deficit and poverty gap are not as aparent. An exception to this are only families with five or more children, the average deficit of which is approximately double than the combined deficit for other types of families. With regard to the age of children, the average deficit is lower among older children (10 - 18 years old), with a higher poverty rate. The average poverty deficit is lower when more adults within a household are employed.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

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Table 3: Average poverty deficit by child characteristics* (2008) Poverty deficit (1)

Poverty gap (2)

Overall population and children (0-15 and 16-18 in educ.)

-28.7 -27.6

-4.5 -3.9

Number of children 1 2 3 4 5+

-29.1 -22.5 -28.6 -24.9 -45.1

-3.2 -2.5 -5.4 -5.3 -14.2

Age of children 0-3 4-6 7-10 11-15 16-18

-32.2 -40.4 -27.7 -26.3 -22.4

-3.6 -4.4 -3.9 -4.0 -3.4

Number of employed in household 0 1 2 3+

-36.1 -23.0 -22.0 -12.4

-22.9 -3.8 -1.4 -0.5

(1) The difference between the poverty line and the average income of poor persons presented as a share of the poverty line. The poverty deficit shows for what percentage the average income of the poor persons is lower than the poverty line.

(2) The difference between the average income of the population (poor and non-poor) and the poverty line,whereby that difference for people who are not poor is equal to 0. The poverty gap shows how many financial resources are needed using perfectly directed transfers (holding all other things constant) to lift all of the poor out of poverty.

Source: authorâ&#x20AC;&#x2122;s calculations based on HBS (equivalent income; modified OECD equivalent scale)

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

11

1.3 Focusing (targeting) child allowance funds It is also important to analyse to which extent child allowance funds are directed towards the poorest children, i.e. to which extent the existing income verification is efficient. When children are categorized into income quintiles with regards to the equivalent income, only a small number of children from the first quintile receive allowance in comparison to children from the second quintile (63% as opposed to 60%, respectively) (Figure 5). Moreover, almost half of the children from the third quintile are child allowance beneficiaries. Some 57% of the total number of children who are beneficiaries come from the first two income quintiles.

Slika 5. Korisnici i sredstva za DD prema dohodovnim kvintilima* (2008.)

70

Share (%) of children receiving CA by quintil 63,4

59,9

60

Share of CA funds by quintil as % of total CA funds 48,2

50 40 29

26,1

30

26,4

26,5

20 12,4 10

10,1

6,1

0 I.

II.

III.

IV.

V.

Income quintiles

* Quintiles are based on equivalent income, including monetary and non-monetary income.

Source: authorâ&#x20AC;&#x2122;s calculations based on HBS

If income verification functioned perfectly, all children from the first quintile would be eligible for child allowance. As it is difficult to identify all components of family income in reality, errors in the allocation of funds occur (allowance being granted to noneligible persons and vice versa). In this sense we have tried to estimate the error of inclusion and the error of exclusion. The error of inclusion refers to the share of children who obtained the allowance, their income per household member being above the prescribed income census. On the other hand, the error of exclusion pertains to the share of children not receiving the allowance, although their income per household member is below the prescribed income census. In the course of evaluating the errors of inclusion and exclusion, the income concept and income censuses were used, as prescribed by the Child Allowance Act. Table 4 shows that almost a third of the children eligible for allowance, (as their income per household member is below the prescribed census) are not receiving this allowance (error of exclusion). On the other hand, slightly less than one fourth of children receiving the allowance have an income per household member higher than the census prescribed, meaning that they are not entitled to the allowance they are receiving (error of inclusion). The amount of errors in question may be a result of several factors. A real error of inclusion is probably smaller, as children receiving the allowance, with an income per household member above the income census, also encompass some of the children receiving allowance without a household income verification (children with severe disabilities and children of veterans). We can assume that lack of information

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

about eligibility for the allowance is an insignificant factor in explaining the error of exclusion. Both errors are probably most influenced by difficulties in determining the real household income. This primarily refers to the prevalence of the gray market and the significant amount of undeclared income in the total household income.

By taking into consideration only wages, which are the most significant source of household income, it is wellknown that employers in Croatia resort to a widespread practice of paying their employeesâ&#x20AC;&#x2122; wages (in a significant amount) directly (in cash). The problem of identifying the real income of households is to a certain extent evident from the fact that the number of children users of the allowance in the 2002-2008 period reduced only slightly, even though in that period the income census remained the same, and the average nominal wage increased by 40%.

Table 4: Errors in distribution/allocation of child allowance Income per household member Below the prescribed census

CA receivability

Receiving CA

Not receiving CA

Above the prescribed census

Obtained CA for which

Obtained CA for which they

they were eligible

were not eligible (24.6%)

Correctly allocated CA

(Error of Inclusion)

Have not obtained CA to

Have not obtained CA

which they were entitled

as they were not eligible

(32.4%) Correctly denied CA (Error of Exclusion)

12

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

13

2. Social assistance 2.1 Permanent social assistance1 2.1.1 Permanent social assistance beneficiaries

The number of permanent social assistance beneficiaries was not changed from 2002 to 2005 (figure 6). However, after 2006, the number of beneficiaries has been continually declining (the share of permanent assistance beneficiaries in the overall population decreased from 2.7% in 2005 to 2.1% in 2008). Accordingly, the share of permanent assistance dropped from 0.22% of the GDP in 2005 to 0.12% of the GDP in 2008. There is no significant change in the number of users of permanent social assistance in the first three quarters of 2009. The impact of the economic crisis has not yet been translated into increase of the number of users of permanent assistance since persons who lost their jobs use their entitlements to unemployment benefits, and since citizens are compensating loss of income in the market with their savings. The reduction in the number of users of permanent assistance following 2005 is a consequence of the fact that a greater number of users exited the system than entered it (which equally applies to single persons and families). For example, in 2008, the proportion of families using permanent assistance reduced by almost 24% compared to 2005 (in the same period the proportion of single persons reduced by about 13%). Moreover, during the 2006-2008 period, the number of requests for permanent assistance declined by more than 10%. Considering we do not have information regarding why users (families or single persons) exited the social assistance programme, we can only assume that part of the users managed to attain incomes above the income census due to, among other things, positive economic trends following 2005 (economic growth between 2.5-5.6% year on year) and decrease of unemployment. This is also indicated by the fall in the number of working age unemployed users of permanent assistance in the last three years (figure 8). The share of working-age unemployed beneficiaries in the overall beneficiary population declined from 46% in 2006 to 43% in 2008. However, we can assume that one of the reasons for a lower number of permanent assistance beneficiaries lies in the fact that some people obtain allowance for support and care, as a certain alternative to permanent assistance (primarily senior citizens). Conditions for obtaining allowance for support and care are significantly less strict that those for obtaining permanent allowance (explained in more detail in the following section).

Figure 6: Permanent social assistance beneficiaries (2001 – 2009) 4.00%

140,000

3.50%

120,000 100,000

2.50%

2.70%

2.70%

2.70%

2.70%

2.50%

3.00% 2.30%

80,000

2.10%

2.10%

2.10%

2.10%

2.00%

60,000

1.50%

Total number of people (left scale)

Source: MHSW

1 ‘Stalna socijalna pomoć’

Beneficiaries as % of Croatian population (right scale)

93,119 IX/2009

93,754 VI/2009

93,537 III/2009

92,819 2008

102,953 2007

112,508 2006

119,470 2005

120,916 2004

121,515 2003

121,778 2002

2001

0

112,034

40,000 20,000

2.50%

1.00% 0.50% 0.00%

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

14

Working-age unemployed beneficiaries are a majority among permanent social assistance beneficiaries (more than 43% in 2008). Due to a low income and assets census, few of the permanent social assistance beneficiaries are employed, self-employed or receive pensions (figure 7). Since a working-age person should be receiving funds through work and insurance programmes, special attention will be given precisely to the analysis of working-age permanent social assistance beneficiaries.

Figure 7. Permanent allowance beneficiaries by employment status (2008) 50.0% 43,3%

45.0% 40.0% 35.0%

30,1%

30.0% 25.0% 18,1%

20.0% 15.0% 10.0%

5,7% 0,5%

0,9%

1,3%

employed

agricultural worker, selfemployed

pensioner

5.0% 0.0%

unemployed

uncapable for work

child, pupil, student

other

Source: MHSW

2.1.2 Working-age unemployed permanent social assistance beneficiaries Working-age unemployed beneficiaries are a relative majority within the permanent social assistance programme since its introduction in 1998. In certain years, unemployed beneficiaries contributed to almost half of all beneficiaries (figure 8). The reason for this were high unemployment rates in Croatia during the nineties and after the year 2000. Moreover, a high share of unemployed among permanent social assistance beneficiaries was a result of underdeveloped, or in some periods, non-existent measures for their work activation and social inclusion. Data is not available on the number of permanent social assistance beneficiaries who participate or have participated in certain labour market policy measures or in activation/inclusion programmes organised by local authorities and/or employment services. It is also unknown how many working-age beneficiaries exit out of the permanent social assistance programme as a result of employment measures and programmes.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

15

Figure 8: The share of unemployed persons among permanent social assistance beneficiaries in Croatia (%) 50 48 46 46

46 45

45

45

44

43

42 40 38 2003

2004

2005

2006

2007

2008

Source: MHSW

Reasons for overrepresentation of the unemployed among permanent social assistance beneficiaries is also indicated by the structure of this group according to various characteristics (table 5). More than half of the working-age beneficiaries are older than 40, almost 73% have no education or have completed only primary school education. Almost 80% of unemployed beneficiaries have been receiving permanent social assistance for longer than a year. A significant number of working-age beneficiaries have children, of whom 40% are parents of two or more children. We can assume that a certain number of unemployed beneficiaries must provide for children requiring additional care. The unfavourable position of working-age allowance beneficiaries on the labour market is made more difficult by other factors as well, like disability, alcohol or drug abuse etc. Due to all of the above, it is not surprising that working-age beneficiaries represent a vulnerable and not easily employable group on the labour market (lack of qualifications, disability, addictions, providing for children requiring additional care, long-term unemployment and longterm absence from the labour market).

Table 5: The unemployed, working-age beneficiaries of permanent social assistance by age, family status, education and duration of receiving allowance % Age 15-29 30-39 40-60/64

22 21.9 56.1

Family status Single adult Parent + 1 child Parent + 2 or more children Both parents + 1 child Both parents + 2 or more children Childless families

28.8 4.0 2.9 13.0 37.3 15.1

Education No education or primary school Secondary school Higher education (technical )or university

72.6 25.5 1.8

Duration of receiving allowance Up to 6 months 6 months â&#x20AC;&#x201C; 1 year Longer than 1 year

8.1 13.2 78.6

Source: MHSW

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

16

Distribution of working-age beneficiaries of permanent social assistance differs by counties (table 6). Most are from the Koprivnica-Križevci, Zadar, Međimurje, Osijek-Baranja, Brod-Posavina and Vukovar-Srijem counties, where more than half (between 50% and 72%) of the unemployed are beneficiaries of permanent social assistance. Some counties, like Zagreb and Koprivnica-Križevci counties, have over 10% of persons with a disability among the unemployed beneficiaries. In the Međimurje, Istria and Zagreb County the share of former or present alcohol or drug addicts is two to three times higher than the national average. It must be emphasised that the Roma represent a significant share of the working-age unemployed social assistance beneficiaries in some counties (this is particularly the case in the Međimurje County in which the Roma account for over 70% of the permanent social assistance beneficiaries). The Međimurje and Koprivnica-Križevci counties have the most unfavourable structure of the unemployed permanents social assistance beneficiaries, where the number of unemployed beneficiaries amounts to over 50% of all beneficiaries. Moreover, these counties have, among the working-age unemployed beneficiaries of permanent social assistance higher than average number of persons with disabilities, persons who are substance abusers, the Roma and parents with two or more children.

Table 6: Ranking of counties in regards to characteristics of the unemployed beneficiaries of permanent social allowance (2008)

Share (%) of the unemployed among all beneficiaries

Share (%) of persons with disabilities among the unemployed beneficiaries

Share (%) of alcohol or drug abusers among unemployed beneficiaries

Share (%) of the unemployed living in households with 2 or more children

Share (%) of the Roma among unemployed beneficiaries

Counties with the highest share

Kop-Kri (72%) Zadar Međimurje Osj-Bar Brod-Pos Vuk-Sri (50%)

Zagreb County (13%) Kop-Kri Dub-Ner Karl Istria Krap-Zag (8%)

Međimurje Istria Zagreb County Varaždin Dub-Ner (8%)

Međimurje (70%) Kop-Kri Vuk-Sri Bje-Bil Sis-Mos (41%)

Međimurje (73%) Kop-Kri Prim-Gor Osj-Bar Bje-Bil (20%)

Counties with the lowest share

Krap-Zag (20%) Istria Lika-Senj Varaždin Zagreb County (30%)

Međimurje (0%) Vir-Podr Prim-Gor Zadar Brod-Pos (3%)

Lika-Senj (0.5%) Karl Prim-Gor Brod-Pos Osj-Bar (1.5%)

Lika-Senj (11%) Krap-Zag Spl-Dal Pož-Sla Prim-Gor Istria (22%)

Dub-Ner (0%) Zadar Spl-Dal Pož-Sla Krap-Zag (0%)

Croatian average

43%

5%

4%

37%

16%

The important question is to which extent the social welfare system creates unemployment and poverty traps, discouraging work and search for employment. In this respect, it is useful to analyse differences in income between households which rely exclusively on social welfare assistance and households in which one adult is employed (table 7).

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

17

Table 7: Differences between earnings and permanent social assistance for different types of households (Croatia, 2009) Number of children

Net household income of an employed person (minimum wage)

Social assistance

Difference (%) for Croatia (household incomesocial assistance)/ household income

Difference (%) for Germany (1999)

Single adult

0

2 132

500

76.5

52.9

Married couple

0 1 2 3 4

2 197 2 447 2 697 3 597 4 397

900 1 650 2 400 3 650 4 900

59.0 32.5 11.0 -1.5 -11.4

39.3 27.7 19.9 14.6 ...

Single parent

1 2 3 4

2 484 2 771 3 732 4 577

1 450 2 400 3 750 5 180

41.6 13.4 -0.5 -13.2

26.7 12.6 ... ...

Type of household

Remark: Net household income of an employed person is obtained by deducting pension insurance contributions and taxes/surcharges on income from the gross minimum wage. Net household income and social assistance include child allowances. We assumed that children in all types of families were between 7 and 15 years old (meaning they obtain 90% of standard assistance or base rate). Minimum gross wage in the first half of 2009 amounted to HRK 2,747. In the calculation of social assistance, it was assumed that beneficiaries have no income outside of the social assistance (according to MHSW data, they amount to 90%).

In Germany, net household income refers to household income of an unskilled industrial worker.

Source: for Croatia: authorâ&#x20AC;&#x2122;s calculations; for Germany: Adema, Gray and Kahl, 2003.

Simulations presented in table 7 indicate that the social assistance programme favours families with children as opposed to single adults or childless families. The position of single adults or childless couples is less favourable in the Croatian than in the Germany social assistance scheme. It is evident that the reason for a scheme designed in this way is the intention to protect children from (utter) material poverty, which conforms to the constitutional position of family. On the other hand, the less favourable status of working-age single adults or couples in the social welfare system reflects the opinion that everyone (who is capable of doing so) should be able to satisfy their needs (the principle of self-help). However, the amount of HRK 500 for a single adult can hardly ensure the very basic need for nutrition intake. The fact that working-age persons who are permanent social assistance beneficiaries might receive income from outside of the social welfare scheme (widespread gray economy and unreported employment) seems to be generally accepted. The fact that obligations were not regulated and that no sanctions were in place for the unemployed beneficiaries who refuse to participate in public work projects, social service or humanitarian work in the local community, have contributed to the above.

Table 7 shows that it is more profitable for families or single parents with three or more children (even for those with two children) to remain in the social assistance programme than to find a minimum-wage job. In this respect there is no significant difference between the Croatian and German or other social welfare systems. All social assistance systems in European countries favour families with children or large families. However, data for Croatia shows that an exception to this trend are single-parent families with one child. For such a parent the social assistance system is less favourable than for two-parent families with one child.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

18

2.1.3. Role of the scale of equivalence In regards to the abovementioned bias of the social welfare system favouring families with children, it is important to determine to what extent the permanent social assistance programme fulfils the two goals: ensuring minimum income (regardless of how it has been defined) and stimulating beneficiaries to be active in regards to employment. The number of unemployed beneficiaries living with two or more children is not negligible, as they amount to 40% of the total working-age beneficiaries (table 5). From the total number of all families receiving permanent social assistance, some 29% are families with three or more children. One of the elements influencing fulfilment of the goals indicated is how the scale of equivalence is defined. The scale definition has direct influence on the total amount of assistance for which a family or a single adult is eligible. The bias of the Croatian scale of equivalence, favouring families with children, is visible in table 8.

Scales of equivalence in the social assistance of certain countries Family composition

Finland

France

Ireland

Malta

Czech Rep.

Latvia

Bulgaria

Slovenia

Croatia

Parent + 2 children

2,3

1,8

1,3

1,3

2,4

2

3

2,2

3,3

Couple + 2 children

3

2,1

2

1,4

3,1

3

3,6

2,3

3,6

Differences are even more evident in families with three or more children. For instance, in a family with four children, the sum of coefficients for all family members amounts to 2.9 in Slovenia, 2.6 in Austria and 5.4 in Croatia.

The role of scales of equivalence is to align the level of well-being in households of different size and composition. If the only factor taken into consideration was the number of household members (per capita scale), then needs of four-member families would be double than the needs of two-member families. There is, however, no justification for this, as this method disregards different needs of certain family members. It is obvious that adults and children will not need the same amount of resources to enjoy standard lifestyle. As a rule, children spend less than adults, meaning that per capita scales underestimate the level of well-being of those individuals living in families with a number of children. On the other hand, when household expenses are aligned only with household size, the economy of scale in household spending is disregarded. Economy of scale pertains to the fact that some goods and services have â&#x20AC;&#x153;public household goodsâ&#x20AC;? characteristics, in other words, consumption of the goods or services in question by one family member does not necessarily reduce the amount of consumption by another member of the same household. Since people share some goods and services, expenses do not increase proportionally with the number of household members. Some of the things which can be shared in a household are the bathroom or bedroom, lighting, watching TV, commuting to work, food preparation etc. Due to influence of the economy of scale, a two-member household consisting of two adults will not need double income than a one-adult household, in order to achieve the same level of well-being.

When economies of scale is ignored, the standard of living in a large household is underestimated in relation to a small household.

As opposed to scales of social assistance systems of other countries or both OECD scales, the Croatian scale of equivalence (table 9, second column) assigns at least the same or higher level of household spending to children (children under 7 have the same, and children older than 7 have a higher coefficient than other adults in the household). As already stated, this policy was certainly motivated not only by the intention to protect poor

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

19

children from extreme poverty, but also to ensure a minimum reasonable level of material well-being for them.

However, the question is whether social assistance funds have always influenced an improvement of standard for these children, as intended by legislators. It must be stressed that adults, i.e. parents dispose with these funds, whereby distribution within a household depends on them. This means that not only children, but also adults in large families are favoured over persons living in smaller families with less children. Moreover, single parent families with one child, and single-parent families with more children are treated differently, which results from the fact that the bonus amounting to 25% of the base rate is assigned per child, not parent. All of the above is reflected not only on the possibility of fulfilling basic needs in certain types of families, but could also have an effect on work activation of the adults from families favoured in terms of allowance.

Moreover, since child allowance is not considered as income in regards to eligibility for social assistance, the gap between families with one or two children as opposed to families with three or more children grew due to the introduction of pronatality bonus (which amounts to 100% of the permanent assistance base rate for the third and fourth child).

Within the existing scale of equivalence, childless families fare ‘worse’ since the coefficient of an adult is lower than the coefficient of a child older than 7. The status of a single adult is also unfavourable, but does not depend solely on the scale of equivalence, but also on the amount of base rate or standard assistance. Since base rate in Croatia is arbitrary determined based on Government decision, and is not harmonised with costs of living, the result is a very low amount of assistance for this group of beneficiaries, and a constant reduction of assistance value due to increased costs of living (which was also remarked by the Council of Europe in their last report from December 2008 on the alignment of the national situation with the European Social Charter, ratified by Croatia in 2003). Monthly amounts of permanent allowance for a working-age single adult were mostly lower than 10% of gross wage over the last decade (figure 9). It was increased in 2009 due to the base rate increase in late 2008, from HRK 400 to 500.

Figure 9: Permanent social assistance amounts for a working-age single adult (as % of average wage) 12

10,7

10

9,8

9,6

9,1

8,7

8

9,4 8,3

7,7

6 4 2 0 2002

2003

2004

2005

2006

2007

2008

I-IX/2009

Source: author’s calculations

The following changes can be made in the permanent allowance system in order to not affect the existing level of rights: • base rate increase, and • scale of equivalence change.

The base rate would change from HRK 500 to 700, and the “old” OECD scale of equivalence would be applied with minor changes (as opposed to the old OECD scale which assigns the 0.5 coefficient to children younger than 15, the coefficient in this scale would amount to 0.6). In the new scale, the coefficient for children younger than 15 would be reduced to a larger extent than the coefficient for adult household members (table 9, column 3).

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

20

Table 9: Changes in the scale of equivalence Base rate %

Single adult Other adult family member Child family member younger than 7 Child family member, ages 7 – 15 Child family member, age 15-18 or in regular education Persons receiving an increased amount of allowance Person incapable to work/disability living alone Person incapable to work/disability living in a family

Old scale

New scale

100 80 80 90 100

100 70 60 60 70

50 30

Persons on disability requiring everyday assistance would be eligible for an integrative bonus not encompassed by permanent assistance

Expecting mothers after 12 weeks of pregnancy and new mothers up to 2 months after birth

50

50

Child of a single parent Bonus for a single parent with children younger than 16 or in school

25 0

0 40

Scales of equivalence are not always predetermined, they must be adapted to consumption patterns and the socioeconomic situation of a country. The first World Bank study (Luttmer, 2000) had already confirmed that the old OECD scale is more appropriate than the modified OECD scale or the existing scale in the social welfare system. In order to verify this, we tried to assess coefficients for adults and children based on subjective perceptions of respondents regarding the necessary household income (HBS, 2008). HBS contains two questions on subjective well-being: 1. According to the available monthly income, evaluate the living standard of your household.

(Very difficult; difficult; some difficulties; mostly well, well, very well) 2. In your opinion, what is the lowest net monthly income your household would need in order to live without difficulties?

Since household respondents have indicated the amount of income necessary for their household in order to live “without difficulties”, we have tried to assess coefficients for children and adults in the scale of equivalence, based on nonlinear regression. The assessment was conducted on a sample of those respondents who indicated in the first question that achieving standard of living in their household is “very difficult”, “difficult” or with “some difficulties” (we repeated the assessment on the entire sample, but its difference from the one on the subsample of the “poor” was insignificant. The scale of equivalence can in general be indicated as (Adults + αxChildren)θ where α is the coefficient for children, and θ the indicator of the scale economy (“adults” and “children” refers to their number in a household). Results of the assessment based on non-linear regression are shown in table 10.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

21

Table 10: Assessment of parameters in the scale of equivalence based on the subjective assessment of necessary income Parameters

Value (amount)

95% reliability interval

α (coefficient for child)

0 .544

0 .425 – 0 .662

θ (scale economy indicator)

0 .853

0 .815 – 0 .892

β

8 .138

8 .106 – 8 .170

R2

0 .567

N

1 755*

*Remark: Includes only respondents who answered that their household maintains standard of living with “great difficulty”, “ with difficult” or with “some difficulties”.

Source: author’s calculations based on SHS

This means that the scale obtained (adults+0,544xchildren)0,853 is identical to the old OECD scale, which can be expressed as 0.3+0.7xadults+0.5xchildren. However, reliability intervals and R2 indicate significant variations in answers of the respondents to the second question, since respondents could interpret differently the term “life without difficulties”. The closer coefficients α and θ are to 1, the share of children’s consumption in the overall household consumption is higher, and the economy of scale lower. Regarding the wide reliability interval, in the proposed scale for the social welfare system, the coefficient for children is increased to 0.60 (table 9), so that it is much closer to the upper than to the lower reliability limit (children are still favoured, but less than in the old scale).

The extent to which assistance amounts are intended for certain types of households are adequate from the aspect of protection from poverty, is indicated by data pertaining to the difference between the available household income and the poverty line (table 11). The official EU poverty line and the old OECD scale were used here. Thus, when social assistance amounts for certain types of families are compared to the relative poverty line, the average poverty deficit is significantly lower for families with three or more children than for other types of families. Single adults and childless couples have the least favourable status. According to the old scale, the poverty deficit of single adults is 2.1 times higher than the poverty deficit of families consisting of a couple with three children. Changes in the equivalence scale and an increase in the base rate would reduce the poverty deficit in almost all types of households (mostly single adults and childless families), and poverty deficit among households would diminish. Poverty deficits in examples from table 11 refer only to amounts of permanent assistance and child allowance, meaning that other allowances that the beneficiary is eligible for within the social welfare system, have not been taken into consideration (housing allowance, one-off allowance, allowance for support and care etc.) This means that certain households may obtain higher or “significantly” higher amounts than those indicated in table 11. For instance, if a family consisting of one parent with four children would obtain the monthly one-off allowance of HRK 85 and HRK 250 for housing allowance, the income at its disposal would be 2.5% higher than the poverty line.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

22

Table 11: Comparison of the monthly amount of permanent assistance with the relative poverty line Family composition (children, ages 7-15)

Permanent assistance amount (1)

Poverty line (2)

Poverty deficit

Old scale (4)

New scale (4)

Old OECD scale (3)

Old scale (4)

New scale (4)

500

700

1 787

-76 .9

-60 .8

Childless couple Couple + 1 child Couple + 2 children Couple + 3 children Couple + 4 children

900 1 650 2 400 3 650 4 900

1 190 1 910 2 630 3 850 5 070

3 038 3 931 4 823 5 718 6 612

-70 .4 -58 .0 -50 .0 -36 .2 -25 .9

-60 .8 -51 .4 -45 .5 -32 .7 -23 .3

Parent + 1 child Parent + 2 children Parent + 3 children Parent + 4 children

1 450 2 400 3 750 5 180

1 775 2 570 3 865 5 160

2 681 3 574 4 468 5 361

-45 .9 -32 .8 -16 .1 -3 .4

-33 .8 -28 .1 -13 .5 -3 .7

Single adult

(1) Child allowance was included in the amounts.

(2) The official EU poverty line was used: 60% of the median national income.

(3) This scale assigns coefficient 1 to the first adult in a household, coefficient 0.7 to the other adults, and coefficient 0.5 to children under 16.

(4) Includes both the old and the new scale in the social welfare system.

Source: authorâ&#x20AC;&#x2122;s calculations

If base rate is increased to HRK 700 and the new equivalence scale applied, this would increase permanent assistance funds for the existing beneficiaries for about HRK 93 million annually. Funds for new beneficiaries in the system would have to be budgeted in, due to an increase in census for HRK 200 (which are harder to estimate precisely).

2.2. Allowance for support and care2 2.2.1 Beneficiaries and funds

The support and care allowance has to be looked into, primarily since its number of beneficiaries exploded after year 2000 (figure 10). Thus, the number of beneficiaries of this allowance was about 2.5 times higher in 2008 than in 2001. By 2005 the number of beneficiaries increased by one fourth each year. After 2005, the trend still continued, but more gradually (3%-4% per year). With the increasing number of beneficiaries, expenditure rose accordingly (figure 11). For instance, while expenditure for support and care amounted to 30% of permanent social expenditure in 2001, in 2008 these expenditures exceeded 80% of all permanent social assistance expenditures. In 2008, expenditure of these two programmes amounted to about one third of the total social welfare funds from the government budget.

2 Doplatak za pomoÄ&#x2021; i njegu

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

23

Figure 10: Beneficiaries for the support and care allowance (2001 – 2009) 90.000

125,6

124,7

140

126

80.000

113,4

70.000

104,1

103,2

102,6

120 100,5

101,1

100,4 100

60.000 50.000

80

40.000

60

30.000

Number of beneficiaries (left scale)

78.470 IX/2009

78.136 VI/2009

77.294 III/2009

76.872 2008

74.897 2007

72.555 2006

69.725 2005

61.471 2004

48.804 2003

39.143 2002

0

31.165

10.000

40

2001

20.000

20 0

Chain index (right scale)

Source: MHSW

Figure 11: Ratio between expenses for the support and care allowance and permanent social assistance 100.0% 90.0%

75.2%

80.0% 70.0%

61.7%

67.1%

53.3%

60.0% 50.0% 40.0%

82.2%

30.2%

34.4%

41.0%

30.0% 20.0% 10.0% 0.0% 2001

2002

2003

2004

2005

2006

2007

2008

Source: author’s calculations based on MHSW data

The key question is: why did the number of beneficiaries of the support and care allowance grow continually and rapidly? Part of the answer to this question lies in the structure of beneficiaries. About 58% of beneficiaries using this right in 2008 were persons older than 65. It needs to be emphasised that the support and care allowance may be granted to a person “who, due to physical or mental disability or permanent changes to his/her health or due to advanced age, is in critical need of permanent assistance/support and care of another person, as he/she is unable to fulfil his/her basic needs” (Social Welfare Act). Income censuses for eligibility for this right are double than those for permanent assistance (2.5 times higher for single adults), while beneficiaries with severe physical and mental disabilities obtain the allowance regardless of income census. The full amount of support and care allowance is equal to the permanent social assistance amount. Finally, although the Social Welfare Act prescribes that a verification of assets applies to the eligibility of this right, in practice this seems to not have been the case (assets reporting was not implemented). Due to all of the above, reasons for an increase in the number of beneficiaries lie in the fact that the support and care allowance turned into a parallel form of permanent social assistance intended for the elderly and other persons with physical and mental disabilities, which was easier to obtain than permanent social assistance. We can assume that criteria for the evaluation (medical assessment) regarding the granting of permanent support and care of another person were interpreted inconsistently and broadly. This is particularly true for the elderly. Based on the facts and analyses done so far, it is possible to conclude that a significant number of elderly persons receiving no pension, use this right as a form of pension.

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

3. Findings and recommendations 3.1 Child allowance In regards to child allowance, the existing analysis indicates the following: • The share of child allowance in the total household income increases with the number of children (in families with one or two children, the child allowance share is about 7%, while it is two to four times higher in households with three or more children).

• Legislation changes regarding eligibility for child allowance, which entered into force in early 2007, have resulted in an increase of the average allowance amount (primarily due to the introduction of a pronatality bonus, and three income censuses). However, the problem is that the budget base rate that child allowance is tied to, is not adjusted to the growing cost of living, or to other statistical indicators. This is why the allowance amount did not increase from 2002 to 2006, despite the growing living costs. As a result, the importance of child allowance is further decreased in a household budget.

• Child allowance reduces the child poverty rate in general. The reduction of relative poverty rate grows with the number of children. Child allowance reduces the rate of child poverty most in household with four children. Accordingly, the poverty reduction rates vary depending on the age of the children (the poverty reduction rates are by far lowest for the oldest children aged 16-18).

• Income censuses influence the directing of child allowance funds primarily to the first three income quintiles. However, errors of inclusion and exclusion are significant. Almost a third of the children whose household income is below the prescribed census, are not receiving the allowance, while a fourth of those receiving the allowance have a household income above the census prescribed. The most significant cause for erroneous distribution of funds are difficulties in identifying the real household income (prevalence of unreported employment and a significant role of undeclared income in the total household income).

Based on the above, the following measures could contribute to a more efficient and rational distribution of child allowance funds: (1) Control and supervision activities must be instensified with regards to illegal work and employment, since these activities indirectly influence better focusing of child allowance (as the share of unreported earnings would decline). On the other hand, focusing could be improved by stricter income verifications or by complementing income verifications by assets verifications. Regardless of errors of inclusion and exclusion, the indicated measures of stricter or more extensive income verifications would be too expensive (administrative costs for establishing the assets and income facts, would in a number of cases exceed the amount of the relatively low child allowance). Moreover, this would be contradictory to the effort of providing child allowance for all children, not just the poorest ones, naturally in a differentiated amount.

(2) More attention should be paid to identifying the number of allowance beneficiaries with dual citizenship (primarily Croatian citizens who are also citizens of Bosnia-Herzegovina). In this respect, the application form for the allowance would contain an additional question for persons with more than one citizenship. Beneficiaries with two registered residences are a problem. So far it was impossible to determine the income obtained in Bosnia-Herzegovina for beneficiaries with dual citizenship. This is why it is important to eliminate cases of fraudulent reporting of residence in Croatia, or reporting of two residences.

24

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

(3) Verification of income for children with severe disabilities would also contribute to a more rational usage of child allowance funds. At present, these children are eligible for the allowance regardless of family income.

Different and higher income censuses would be used for this group of children. Two solutions are possible: a) withdrawal of eligibility for the allowance for children with severe disabilities whose household income is high, or b) that all children with severe disabilities remain eligible for the allowance, but in a different amount, depending on household income.

(4) The right to child allowance for young adults of age over 18 who are students should be reintroduced. We believe that this may be an additional incentive for some of the poor children, providing them with an opportunity for higher education. This would somewhat improve the material status of students from poorest families. Withdrawal of the allowance for students occurred too early, in a situation when an adequate system of scholarships was not fully developed.

If we limited the allowance eligibility to students aged 19-25, the 27% or around 45 000 students would become eligible for the allowance (according to the HBS). It is important to note the high rate of error of inclusion and exclusion, which indicates that this number could be higher by even as much as a fifth (approximately 11 000). When applying the current income censuses for child allowances, the total funds for child allowances for students aged 19-25 would be equal to HRK 130 million on a yearly level (or around 160 million if accounting for the inclusion error). Child allowances would reduce the relative poverty rate amongst students aged 19-25 from 7.2% to 6.4%.

(5) As the analysis has shown that child allowance has the least influence on reducing poverty among the older child group (16 - 18 years old), and since this group has the highest post-transfer poverty rate, but a low poverty deficit, an introduction of allowance based on age would be useful.

(6) The budget base rate to which income censuses are linked, or allowance amounts, must be periodically adjusted to the cost of living.

3.2 Social welfare (permanent social assistance and allowance for support and care) Findings regarding social assistance programmes are as follows: • The number of permanent social assistance beneficiaries shows a gradual decline since 2005. One of the main reasons for a lower number of permanent assistance beneficiaries lies in the fact that some people obtain allowance for support and care, as a certain alternative to permanent assistance (primarily senior citizens). Conditions for obtaining allowance for support and care are significantly less strict that those for obtaining permanent social assistance.

• Working-age unemployed persons are a relative majority among permanent social assistance beneficiaries, and the key issue is their work activation. A high share of the unemployed among permanent social assistance beneficiaries is a result of negative trends in the economy and on the labour market in the last two decades, as well as of underdeveloped measures of their work activation and social inclusion. Due to their characteristics, working-age beneficiaries of the social assistance represent a vulnerable and not difficult to place group on the labour market ( less educated and “older” individuals on the labour market, additionally burdened by disability, substance abuse, providing for children requiring extra care, long-term unemployed). Significant regional differences exist in the structure of unemployed permanent social assistance beneficiaries.

25

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

â&#x20AC;˘ The social assistance programme favours families with children over single adults or childless families. The poverty and unemployment traps pose a challenge for complete families or single parents with two or more children, for whom remaining in the social assistance programme has more advantages than working for a minimum wage. Insufficient attention was given to stimulating employment of long-term social assistance beneficiaries. Moreover, obligations of unemployed working-age social assistance beneficiaries, in terms of their participation in public works projects or in social work, have not been clearly defined by law. â&#x20AC;˘ The equivalence scale within the social welfare system is biased, favouring families with children to a much higher extent than in most European countries. This scale assigns the same or higher share in household spending to children under 16, than to persons older than 15. This is why children and adults in large families are favoured in relation to children and adults in families with less children. Furthermore, single adults and childless families have a much less favourable status than do families with children (poverty deficits in these households are much higher than poverty deficits in other types of households). This may have had a negative influence on the ability to fulfil basic needs by beneficiaries in single households or in childless households, but also on the work activation of adults in households with a number of children. â&#x20AC;˘ Over the last ten years the number of beneficiaries obtaining the allowance for support and care exploded. Almost 60% of these beneficiaries are senior citizens. It seems that the allowance for support and care turned into a parallel form of permanent social assistance intended for the elderly and other persons with physical and mental disabilities, as this allowance is easier to obtain than permanent social assistance (income censuses are higher and the verification of assets is not implemented consistently). Most of the senior citizens without pension consider this right as a substitute for pension.

With regards to permanent social assistance and the allowance for support and care, the following measures and proposals should be taken into consideration:

(1) Although the number of permanent social assistance beneficiaries declined since 2006, it can be assumed that this number will increase next year, as some beneficiaries of unemployment benefits will lose this right, and will be forced to join the social welfare system. This is why it is necessary to plan funds for this purpose. It is difficult to accurately estimate the number of unemployed users who could in the next year end up being part of the social welfare system because we do not have enough information regarding their household income and asset status. It seems, however, that this number will not be large. According to the Employment Service data, amongst those receiving unemployment benefits, the number of persons older than 50 is growing. In October 2009, around 65% of all those receiving unemployment benefits were pregnant women or people who had worked more than 32 years, which means that they are eligible for those benefits until they get employed. If we add to these those that will receive benefits for a year or longer, only a few thousand users could enter the social welfare system (according to the Employment Service, in October 2009 the unemployment benefit was used for less than a year by 20 000 users). Some of the requests for allowance could be handled by one-off allowance. It is important to note that during 2009 the number of one-off allowance beneficiaries did not increase either (in fact, this number was slightly lower in October of 2009 than it was in October of 2008).

(2) Much more attention and funds should be given to work activation of working-age unemployed beneficiaries of social assistance. Possible activation measures are: subsidising employment of long-term beneficiaries of the permanent social assistance from social assistance funds, in cooperation with employment services; introduction of a measure whereby social assistance users would be entitled to the assistance for a certain limited time following employment (especially if new employment incurs additional expenses for travel, separation from the family etc.); avoiding counting in some or all of the earnings from short-term seasonal or temporary employment as income of the beneficiaries. Subsidies from

26

Role and efficiency of child allowance and social assistance as mechanisms of the social safety net

social assistance funds may be particularly useful in periods when the labour market active policy measures are suspended (which occurs from time to time). In order to stimulate the unemployed assistance beneficiaries with children to accept employment which will not significantly increase their income in relation to social welfare, “tax loans” should be analysed for families of employed parents.

(3) In counties where the Roma form an absolute or relative majority among unemployed beneficiaries of social assistance special programmes must be prepared for their work activation and social inclusion (bearing in mind the educational, work and other characteristics of this ethnic group).

(4) Modify the existing equivalence scale in the social welfare system as suggested above (section 2.1.3).

The introduction of a new scale would significantly reduce the poverty deficit of single adults, childless families and single parents with one child.

(5) A more consistent verification of assets should be conducted in the process of determining eligibility for allowance for support and care, and a consistent system must be developed for evaluating capabilities (i.e. levels of functioning and support needed), which is also crucial regarding eligibility for this right. In order to avoid possible abuse, a single system must be developed for expert assessment, rights for the persons with disabilities and those with needs for daily support.

(6) A part of the solution for senior citizens obtaining allowance for support and care, is the introduction of social pensions for senior citizens without pension (it is also one of the measures adopted in the Joint Memorandum on Social Inclusion of the Republic of Croatia). These pensions would be higher than the standard amount of permanent social assistance. Still, a more acceptable model of providing social pensions needs to be discussed.

According to HBS data (2008), 12.9% of persons older than 65 do not receive pensions, with more than half of them below the relative poverty line (60% of the median national income). According to the UNDP Quality of life survey from 2006 (EQLS), it was estimated that 12.4% of persons older than 64 have no pension (Šućur, 2007). In mid 2008 Croatia had 4,434,500 inhabitants, of whom 17.28% are persons older than 64 (according to CBS). This means that in Croatia, there are approximately 95,000 people older than 65 who do not receive pensions. An introduction of social pensions would increase social expenditure. The amount of costs depends on the type of social pensions, or the type (rigorousness) of the income and assets verification (means test). The important issues to be resolved are potential users to whom a means test would apply as well as monetary amounts of potential social pensions. Two solutions are possible in regards to the means test: • to take into consideration assets and income of all household members,

• to take into consideration only assets and income of the senior citizen and his/her partner (if living together).

The second solution would be more acceptable and simpler (although it would require more funding).

It is difficult to estimate the number of senior citizens without pensions who would be eligible for social pension, since this depends on the manner of income/assets verification. However, if the pension would be 30% higher than the base in social care (HRK 650) and if the income census would be HRK 650 for a single person and HRK 1200 for a couple, and if only the income of the user was verified (without checking the value of the asset), then a bit more than 40 000 elderly people would be eligible for social pensions (according to theHBS). The funds needed to provide social pensions on a yearly basis would be equal to a bit less than HRK 280 million. Considering that around 9.5 thousand elderly people without pensions are eligible and use permanent social assistance, and that around 44 thousand people older than 65 receive allowance for support and care, it can be assumed that the additional (new) costs of social pensions would be between HRK 150 and 200 million on a annual basis.

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