Benefits And Wages

2004 Benefits and Wages OECD INDICATORS The 2004 edition of Benefits and Wages provides results for 2001 and 2002. Unem...

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2004

Benefits and Wages OECD INDICATORS The 2004 edition of Benefits and Wages provides results for 2001 and 2002. Unemployment and related welfare benefits help prevent those without work from falling into poverty but can at the same time reduce the incentive to work; this is one of the main dilemmas of social policy. Launched in 1998, this series (formerly entitled Benefit Systems and Work Incentives) addresses the complicated interactions of tax and benefit systems for different family types and labour market situations and their impact on household incomes and financial work incentives.

«

Benefits and Wages OECD INDICATORS

This new edition provides detailed descriptions of all cash benefits available to those in and out of work as well as the taxes they were liable to pay across OECD countries during both 2001 and 2002. Total household incomes and their components are calculated for a range of family types and employment situations. The results are used to examine financial incentives to work, either part-time or full-time, as well as the extent to which social benefits prevent income poverty for those without a job. The analyses draw on detailed country-by-country information which is available on the Internet at www.oecd.org/els/social/workincentives.

OECD's books, periodicals and statistical databases are now available via www.SourceOECD.org, our online library. This book is available to subscribers to the following SourceOECD themes:

Benefits and Wages

Employment Social Issues/Migration/Health Taxation Ask your librarian for more details of how to access OECD books online, or write to us at

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OECD INDICATORS

www.oecd.org

ISBN 92-64-01515-9 81 2004 07 1 P

2004

-:HSTCQE=UVZVZ^:

2004

Benefits and Wages OECD INDICATORS

2004 Edition

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)

was set up under a Convention signed in Paris on 14th December 1960, which provides that the OECD shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).

Publié en français sous le titre : Prestations et salaires : Les indicateurs de l’OCDE Édition 2004

© OECD 2004 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70, fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: www.copyright.com. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France.

FOREWORD

Foreword

T

his is the fourth edition of a series of publications (previously entitled Benefit Systems and Work Incentives for the editions of 1998 and 1999), which allows comparisons of the welfare benefits made available to those in and out of work, net of the taxes they are liable to pay. The series addresses in a systematic way, country by country, the complicated interactions of tax and benefit instruments. It includes analyses of net (i.e. after-tax) incomes in and out of work for different family types and labour market situations presented in a format which facilitates cross-country comparisons. This volume provides results for 2001 and 2002 and the main indicators shown for 1995, 1997 and 1999 in previous editions are updated accordingly. The main indicators computed from the comparisons of net income in unemployment, part-time and full-time work are a) the Net Replacement Rate (NRR) and b) the Average Effective Tax Rate (AETR) and Marginal Effective Tax Rate (METR) faced by individuals entering work or increasing their working hours. This volume also provides detailed comparisons of the impact of different tax-benefit instruments on available household incomes, with a particular focus on the degree to which social benefits provide protection from income poverty for those without a job. The analyses draw on detailed country-by-country information on benefit systems which is available on the OECD Internet site, www.oecd.org/els/social/workincentives. This information has been supplied by the delegates to the Working Party on Social Policy of the Directorate for Employment, Labour and Social Affairs. The information on income taxes and social security contributions has been supplied by the Centre for Tax Policy and Administration. This report is partly the result of a joint project between the OECD and the European Commission. It has been produced with the financial assistance of the European Community. The views expressed herein are those of the OECD Secretariat and can therefore in no way be taken to reflect the official opinion of the European Community. The report has been prepared by Herwig Immervoll, with contributions from David Barber, Desney Erb and Dominique Paturot. The authors are grateful to Mark Pearson who provided advice during different stages of the project. This volume is published on the responsibility of the Secretary-General of the OECD.

BENEFITS AND WAGES: OECD INDICATORS – ISBN 92-64-01515-9 – © OECD 2004

3

TABLE OF CONTENTS

Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

A detailed look at social benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How do taxes and benefits affect individuals in different circumstances?. . . . . . . . . .

8 11

Chapter 1.

Elements of Tax-benefit Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview of key benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Main features of social transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Tax treatment of benefits and interactions between tax-benefit instruments . . .

18 18 20 54

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57

Chapter 2.

Tax Burdens, Benefit Entitlements and Net Income Levels . . . . . . . . . .

59

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. An illustration of the mechanics built into tax-benefit systems. . . . . . . . . . . . . 2. Net incomes in employment: tax-benefit position of employees and their families. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Net incomes during unemployment: tax-benefit position of unemployed persons and their families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Net transfer payments available to the poor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60 61

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90

Chapter 3.

Financial Consequences of Employment Transitions . . . . . . . . . . . . . . .

91

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Transitions between work and unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Transitions between jobs: changing working-hours or work effort . . . . . . . . . .

92 93 110

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

Chapter 4.

Policy Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Out-of-work benefits and benefits of “last resort”. . . . . . . . . . . . . . . . . . . . . . . . . 2. Family benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Childcare and home-care benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Employment-conditional benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

116 116 120 121 122

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

124

Annex A.

Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

125

Annex B.

Using the OECD tax-benefit models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

139

List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

141


67 74 81

5

TABLE OF CONTENTS

Tables 1.

Public social expenditure: cash transfers by main category. . . . . . . . . . . . . . . . .

9

1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 1.10. 1.11. 1.12.

Types of social transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unemployment insurance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unemployment assistance benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social assistance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits available to the young unemployed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash housing benefits for rented accommodation . . . . . . . . . . . . . . . . . . . . . . . . Family benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Childcare benefit schemes: description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Childcare benefit schemes: examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lone-parent tax and benefit schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employment-conditional benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax treatment of benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19 21 27 29 33 35 37 40 44 46 49 55

2.1.

Poverty thresholds and APW values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82

3.1. 3.2. 3.3. 3.4. 3.5.

94 97 102 104

3.6.

Net Replacement Rates for six family types: initial phase of unemployment . Net Replacement Rates for six family types: long-term unemployment . . . . . . Average of Net Replacement Rates over 60 months of unemployment . . . . . . . Gross Replacement Rates for three family types over a five-year period. . . . . . Average Effective Tax Rates for short-term unemployed persons re-entering employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marginal Effective Tax Rates for part-time employees . . . . . . . . . . . . . . . . . . . . .

108 112

A.1.

APW earnings and statutory minimum wage . . . . . . . . . . . . . . . . . . . . . . . . . . . .

134

Figures 1. 2.

6

3.

In several countries, above-average wages are required to escape poverty . . . . . . Minimum wages and family incomes: employment of both parents is essential to avoid poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Well-designed “make work pay” policies can facilitate a quick return to work . . .

13 14 15

2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.7.

Budget constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax-benefit position of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax-benefit position of unemployed individuals . . . . . . . . . . . . . . . . . . . . . . . . . . Net incomes of social assistance recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net benefit elasticity with respect to the number of children . . . . . . . . . . . . . . . In-work earnings required to reach the poverty line . . . . . . . . . . . . . . . . . . . . . . Net incomes of full-time minimum-wage earners . . . . . . . . . . . . . . . . . . . . . . . .

62 68 75 83 85 87 88

3.1. 3.2.

Net Replacement Rates over a five-year period . . . . . . . . . . . . . . . . . . . . . . . . . . . The OECD summary measure of benefit entitlements . . . . . . . . . . . . . . . . . . . . .

100 105


ISBN 92-64-01515-9 Benefits and Wages: OECD Indicators 2004 Edition © OECD 2004

Executive Summary

A detailed look at social benefits How do taxes and benefits affect individuals in different circumstances? Social safety-nets and income poverty Overcoming benefit dependency – and poverty Keeping unemployment-spells short


7

EXECUTIVE SUMMARY

T

he incomes of employees, unemployed persons and their families are influenced by a multitude of different social and fiscal policy measures. Understanding the impact of these policies is important for social, public finance and labour market reasons. Policy-makers attempt to accomplish three broad goals in the design of benefit systems: support the living standards of low-income families, especially when children are present; encourage work and economic self-sufficiency; and keep government costs low. These goals sometimes conflict so trade-offs complicate the picture. The outcome of policy measures is influenced by the amount of resources devoted to them as well as their specific design.

A detailed look at social benefits Social spending levels are determined by a large number of factors including policy aims and institutional traditions as well as the balance between private and public provision of relevant goods and services. The variation of spending patterns across countries is illustrated in Table 1. While spending levels provide useful information about the potential importance of policy measures across countries, they are not sufficient for understanding how policies affect particular individuals or families of interest. Social policies are intended to address particular contingencies and will therefore often be targeted towards specific groups. For a particular individual or family, the consequences of these measures will then depend on their situation such as being in or out of work, raising children or lacking the financial resources to make ends meet. In addition, different policy measures often interact with each other, which may facilitate or hinder the achievement of particular policy objectives. This publication analyses the direct effects of taxes and social benefits on incomes of working-age individuals and their families in 28 OECD countries. Based on detailed descriptions of benefit systems and relevant policy rules, it presents calculated tax burdens and benefit entitlements for a range of different labour market, family and income situations. The calculations focus on the income situation of unemployed individuals and low-wage earners and how taxes and benefits affect their financial gains from work. The results allow detailed cross-country comparisons of the characteristics of individual policy instruments as well as their combined overall impact on net incomes. The different income levels considered in the calculations are based on the OECD average production worker (APW) salary, as discussed in the OECD publication Taxing Wages: 20012002. The tax calculations in the present publication are based on tax and social security contribution parameters and regulations similar to those used in the aforementioned Taxing Wages series. In addition, the calculations include seven groups of benefits that may be available to families if their circumstances match the corresponding country regulations:

8

●

Unemployment benefits.

●

Social assistance benefits. BENEFITS AND WAGES: OECD INDICATORS – ISBN 92-64-01515-9 – © OECD 2004

EXECUTIVE SUMMARY

Table 1. Public social expenditure: cash transfers by main category 2001, gross transfers in per cent of GDP

All

Old age

Survivors

Incapacityrelated benefits

Family

Active labour market policies

Unemployment

Housing

Other

Australia

10.1

4.1

0.2

2.2

2.4

0.1

1.0

0.1

0.0

Austria

19.1

10.3

2.7

2.3

2.4

0.1

0.8

0.1

0.4

Belgium

18.5

8.6

2.6

2.2

1.9

0.7

2.2

0.0

0.3

Canada

8.4

4.8

0.4

0.8

0.9

0.4

0.8

0.0

0.3

Czech Republic

12.5

6.7

0.9

3.0

1.5

0.1

0.2

0.1

0.0

Denmark

15.4

6.5

0.0

2.7

1.5

0.2

3.0

0.7

0.8

Finland

15.6

7.1

0.9

3.1

1.7

0.3

2.0

0.3

0.3

France

17.4

10.4

1.5

1.7

1.5

0.4

1.6

0.0

0.4

Germany

15.9

10.8

0.4

1.6

1.1

0.3

1.2

0.0

0.5

Greece

16.5

12.6

0.8

1.6

1.1

0.0

0.4

0.0

0.0

Hungary

13.3

7.4

0.3

2.5

1.9

0.3

0.4

0.5

0.1

Iceland

8.4

4.1

0.6

1.8

1.2

0.0

0.2

0.1

0.4

Ireland

7.9

2.4

0.8

1.3

1.4

0.4

0.7

0.5

0.5

18.7

12.6

2.6

2.0

0.6

0.2

0.6

0.0

0.0

Japan

9.1

6.4

1.2

0.6

0.3

0.1

0.5

0.0

0.2

Korea

2.4

1.1

0.2

0.3

0.0

0.1

0.2

0.0

0.5

Italy

Luxembourg

14.5

7.5

0.6

2.7

2.9

0.0

0.5

0.1

0.2

Netherlands

13.7

5.7

0.7

4.0

0.7

0.4

1.3

0.4

0.6

New Zealand

11.6

4.7

0.1

2.8

2.1

0.1

1.1

0.6

0.1

Norway

11.6

4.6

0.3

3.9

1.9

0.0

0.4

0.2

0.3

Poland

18.0

8.5

2.1

5.4

0.9

0.0

1.0

0.0

0.0

Portugal

13.3

7.6

1.5

2.4

0.7

0.1

0.9

0.0

0.2

Slovak Republic

12.1

6.5

0.2

2.1

1.4

0.2

0.5

0.1

1.1

Spain

13.2

8.1

0.6

2.3

0.3

0.4

1.3

0.2

0.0

Sweden

14.6

6.8

0.6

3.8

1.8

0.2

1.0

0.0

0.4

Switzerland

18.3

11.6

1.6

3.0

1.1

0.1

0.5

0.0

0.5

United Kingdom

13.7

7.7

0.6

2.2

1.5

0.0

0.3

1.5

0.0

8.0

5.2

0.8

1.1

0.1

0.2

0.3

0.0

0.3

United States

Source: OECD (2004), Social Expenditure Database, OECD, Paris.

●

Cash housing benefits.

●

Family benefits.

●

Childcare benefits (where they do not depend on the use of specific childcare services).

●

Lone-parent benefits.

●

Employment-conditional benefits.

Taxes, benefits and net incomes are calculated for different household circumstances using the relevant legal rules that would apply in each country. Calculations take into account interactions between different tax-benefit instruments (such as the tax treatment of benefits or the influence of tax burdens on benefit entitlements) as well as between different family members (such as the influence of one person’s income on the tax liability or benefit entitlement of another family member). In order to calculate the net income, benefit entitlements, and tax burdens, the OECD has built a tax-benefit model for each country. This publication presents the results of applying such models to many different household types, which are combinations of typical situations regarding labour market


9

EXECUTIVE SUMMARY

status, family situations and previous or actual levels of income in work. All results refer to 2002 unless otherwise noted. This publication: ●

Describes and compares the tax and benefit systems and discusses a range of policy design issues.

●

Presents comparative tables of benefit entitlements across OECD countries.

●

Gives example calculations, showing how different elements of tax and benefit systems interact in each country.

●

Compares net incomes of employees and unemployed persons across countries and separately shows the influence of each type of tax and benefit.

●

Analyses the income situation of families relying on benefits of “last resort” and shows their income levels relative to different poverty thresholds.

●

Compares net incomes of persons earning the statutory minimum wage for countries where it exists.

●

Provides updated figures of Gross Replacement Rates (GRR) and Net Replacement Rates (NRR) for a range of family types and income levels, both for short-term and longer-term benefit recipients.

●

Calculates Average Effective Tax Rates (AETR) for an unemployed person re-entering employment. The AETR measures what fraction of earnings is “taxed away” through higher taxes and lower benefits and is a useful indicator of the financial incentives to take up paid employment.

●

Presents results for Marginal Effective Tax Rates (METR) for employees changing the number of hours they work. The METR is a useful indicator of the financial incentives to increase gross earnings by working more.

●

Provides an overview of relevant reforms to countries’ benefit systems.

Chapter 1 introduces the different benefits that are included in this study and presents their key features. Chapter 2 presents calculated tax burdens and benefit entitlements for a range of family situations and earnings levels to compare the resources available to families in different circumstances. Chapter 3 measures the income differentials between different work situations in order to determine the financial consequences of moving between them. Results are presented for three different types of transition: employees becoming unemployed, unemployed persons returning to work, and a change in working hours for those already in employment. Chapter 4 outlines the trends in recent reforms of benefit systems across OECD countries. Annex A includes a detailed explanation of the assumptions applied for calculating net incomes after taxes and benefits. The models used for computing tax and benefit results in this publication are now available to those interested in using them. Annex B explains how the models may be obtained. Detailed country-specific information about tax and benefit systems, and examples of how net incomes are calculated in each country, are available on the Internet at www.oecd.org/els/ social/workincentives.

10


EXECUTIVE SUMMARY

How do taxes and benefits affect individuals in different circumstances? The results presented in this publication highlight the income consequences of existing tax and transfer regimes in a wide range of different family circumstances and employment situations. These types of data are essential for monitoring purposes as well as for analysing a large number of different social and fiscal policy issues such as the adequacy of incomes secured by social transfers or the financial context of individuals’ employment or family choices. The structure of the publication reflects the variety of different potential uses. The objective is to provide statistical information that is transparent and reconcilable across countries without restricting its applicability to particular policy issues. While the publication does not have an explicit policy focus, the results have direct implications for a number of current policy topics. Three of them are discussed briefly in turn.

Social safety-nets and income poverty Limiting the extent and duration of poverty is a central aim of many parts of benefit systems across OECD countries. Minimum income schemes provide benefits of last resort to individuals and families not able to support themselves financially. In addition, social assistance and other means-tested benefit payments now assume a more central role as transitory income sources. In recent years, there has been an increase in the number of workers in “atypical”, temporary or precarious employment in OECD countries. For these individuals, employment durations are shorter, transitions into and out of work more frequent and coverage by social insurance benefits can be less universal as a result. Where these patterns are observed, social safety-nets are needed to ensure sufficient family resources during low-income spells when employment is either not available or earnings are insufficient. At the same time, conditions for receiving these benefits need to facilitate the return to self-sufficiency for benefit recipients, and supporting policies are needed to overcome barriers to employment. Increasingly, employment-oriented social policies are being used to improve both the likelihood of finding employment and the financial payoff from it. Well-designed minimum income benefits are therefore essential elements of a balanced approach to raising employment levels while pursuing wider social objectives. While poverty reduction is the primary aim of social assistance schemes, the data in this publication show that, in a number of “typical” family circumstances, these benefits fail to prevent income-poverty measured relative to the population at large. This begs the question as to what is meant by “poverty”. Even leaving aside debates about whether “poverty” is related only to income levels in a particular period, countries will have different traditions regarding the income cut-offs that are commonly referred to as “poverty lines”. By comparing the generosity of benefits using a similar definition of poverty across all countries, this publication provides a comparative perspective on the operation and adequacy of benefit systems. In the majority of OECD countries, benefits of last resort are generally set below the resulting poverty thresholds. Even in those countries where benefit entitlements can potentially lift incomes close to these poverty lines, overall entitlements depend critically on the level of housing costs that qualify for housing-related cash support. Two countries (Greece and Italy) do not provide any general entitlement to minimum income benefits


11

EXECUTIVE SUMMARY

while in a number of other countries, the incomes of families who are entirely dependent on social assistance benefits are found to be very low (close to or below 20% of median household incomes). In about half the countries considered, poverty gaps are found to be greater for benefit recipients with children than for otherwise similar childless families.

Overcoming benefit dependency – and poverty Taxes on employment incomes and benefits that are reduced as individuals move into work lessen the financial reward from employment. This is particularly problematic in the case of low-income individuals who can thus be trapped in situations of poverty and benefit dependency – reducing their future employment prospects and increasing poverty as well as the burden on social support systems. The structure of taxes and benefits affecting low-income households is very different across countries and family circumstances. As discussed above, across OECD countries, income from market activities or from benefits other than social assistance is needed to keep families out of poverty but the work efforts required to bring family resources up to a given minimum level vary markedly. Low-wage or part-time employment is a potentially effective route out of poverty in countries allowing benefit recipients to complement benefits with in-work earnings. In addition, low levels of income taxes and, particularly, social security contributions for these types of employment increase the financial attractiveness of lowpaid jobs by increasing the part of any employment income that adds to family resources. Where low levels of earnings make a noticeable difference to family budgets, low-skilled workers and those with limited work experience will find employment to be a more feasible route out of poverty and benefit dependency. In most countries, in-work earnings required to escape income poverty are found to be around 50 to 60% of average earnings in the case of single-person households. Yet, a few countries, through a combination of low tax burdens and low benefit clawback rates for those seeking to supplement their benefit income with income from work, succeed in making even very low-wage employment, below 40% of average earnings, viable as a strategy to exit poverty. Country differences are even larger in the case of multi-person households and this is shown in Figure 1 for married couples with two children. To ensure net income above the poverty line, families in countries as diverse as Hungary, Spain, Sweden or the United States require earnings that are, relative to each country’s average earnings, up to three times as high as in Australia or New Zealand. The wages that low-skilled workers, and other groups with limited wage-earning potential, can attract depend on both market forces and institutional features of the labour market. In several countries, wages are subject to statutory minima. Comparisons based on gross levels of minimum wages, which do not take into account differences in taxes and benefits, can give misleading indications about the true value of the wage floor. They are also not sufficient for examining the income situation of low-wage employees and, thus, the effectiveness of anti-poverty measures that actively seek to promote low-wage employment among groups at risk of poverty. In the majority of countries operating minimum wages, the net incomes of minimum-wage earners are below 60% of median household incomes – one of the poverty lines chosen for the country comparisons. This is shown in Figure 2 below. In about half of those countries, even two full-time workers each earning a minimum wage do not earn enough to keep a family with two children out of poverty. However, an otherwise similar one-earner family is substantially worse off with significant poverty gaps in all but two countries. These results highlight the important role

12


EXECUTIVE SUMMARY

Figure 1. In several countries, above-average wages are required to escape poverty Earnings required for income above the poverty line, in % of average production worker wage (APW), married couple with two children, 2001 120

100

80

60

40

20

A

N HU

P ES

US

C SW E

PR T

GR

N

A

E

D NO R

NL

FI

FR

N

CH

T

L

K

CA

DN

AU

L

IR

E CZ

PO

L

IT A GB R

L

U

BE

DE

NZ

AU

S

0

1. It is assumed that there is only one earner per family. Results are shown in relation to the “60% of median income” poverty threshold. The selection of countries is limited by the availability of recent income data required for computing these poverty lines. Source: OECD Tax-Benefit Models, and calculations based on Förster, M.F. and M. Mira d’Ercole (2004), “Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s”, OECD Social, Employment and Migration Working Paper, OECD, Paris, forthcoming.

of measures, such as the provision of affordable childcare, that promote employment for both parents – particularly in the case of families where all adults have limited earnings potential.

Keeping unemployment spells short In countries operating earnings-related unemployment insurance schemes, the initial phase of unemployment is, compared to long-term benefit dependency, considerably less likely to cause severe financial hardship. To prevent short spells of unemployment from developing into situations of continued worklessness and in order to promote the stability of future employment, it is essential that benefit payments are accompanied by active jobsearch assistance that takes into account the situation and needs of job-seekers. In addition, ensuring job-seekers’ genuine participation in job-search activities requires financial incentives for doing so. Different measures to “make work pay” have been adopted across countries or have been announced recently. Their effect on the financial reward from work can be monitored using a number of different work-incentive indicators. One such indicator measures the part of in-work earning that is, upon entering employment, “taxed away” by the combined effect of higher taxes and lower benefits. For an unemployed person re-entering work, this “tax on re-employment” is determined by the amount of unemployment and other social


13

EXECUTIVE SUMMARY

Figure 2. Minimum wages and family incomes: employment of both parents is essential to avoid poverty Net incomes of married couples with two children, 2001, in % of median household incomes1 One full-time minimum-wage earner

Two full-time minimum-wage earners

100 90

Three different poverty thresholds

80 70 60 50 40 30 20 10

S AU

R GB

L PO

L BE

E CZ

L NZ

L IR

PR T

N CA

A FR

D NL

A US

N HU

C GR

ES

P

0

1. Horizontal lines show different poverty thresholds, defined as 40, 50 and 60% of median household income. Only countries where statutory minimum wages are in place are considered. Source: OECD Tax-Benefit Models, OECD Minimum Wage database and calculations based on Förster, M.F. and M. Mira d’Ercole (2004), “Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s”, OECD Social, Employment and Migration Working Paper, OECD, Paris, forthcoming (available at www.oecd.org/els/workingpapers).

benefits that are lost as well as the tax burden on in-work earnings. The part of employment income that effectively ends up adding to families’ incomes varies enormously across countries and can be prohibitively small, pointing towards very limited financial gains from employment. In particular, incentives to accept employment are often insufficient if prospective wages are below those earned in a previous job. This is illustrated in Figure 3 which shows the “tax on re-employment” for somebody who has recently become unemployed and had previously earned an average wage. In several cases, effective tax rates are very high and sometimes exceed 100%: for unemployed individuals who have previously earned an average wage, the net incomes gained from part-time employment are, in these cases, smaller than the loss of out-of-work benefits. While job-search activities need to focus on finding stable employment that provides an appropriate match between employee and job vacancy and also offers wages comparable to those earned previously, excessive work disincentives associated with lower-paid jobs are a major concern. Lower-paid work or part-time employment can, depending on the nature of the job, offer valuable experience and continuing contacts with employers. It can also serve as a source of income supplementing transfer payments and can thus reduce risks of unemployment-related poverty as well as the financial burden on social protection systems. Measures to “make work pay” range from a one-sided tightening of benefit entitlements and eligibility rules to more comprehensive approaches addressing the

14


EXECUTIVE SUMMARY

Figure 3. Well-designed “make work pay” policies can facilitate a quick return to work Percentage of gross earnings that is “taxed away” when moving back into employment, married couple with two children, 20021 Transition into full-time work; earnings = previous earnings

Transition into part-time work; earnings = 2/3 of previous earnings

Transition into part-time work; earnings = 1/2 of previous earnings 140

120

100

80

60

40

20

T

P CH E SW E LU X DE U

ES

PR

BE L NL D CA N

L

A SV K AU T FI N FR A DN K NO R

IT

IS

N CZ E US A

JP

IR L PO L HU N

NZ L KO R AU S GB R GR C

0

1. The jobless person is assumed to have earned an average wage in the previous job and to receive initial rates of unemployment benefits (following any waiting period). The spouse is full-time employed in a low-paid job earning 2/3 of the average wage. Children are aged 4 and 6. Source: OECD Tax-Benefit Models.

individual situation of job-seekers and taking into account all relevant interactions between policy instruments that may affect the financial context of employment transitions. As unemployment benefit ceilings remain very high in some countries operating earning-related schemes, there is scope for reviewing the balance of resources spent on low and high unemployment benefits. Yet the feasibility of further across-theboard cuts of benefit entitlements is generally limited by the need to prevent widespread poverty among the unemployed. One alternative strategy that does not reduce incomes of the unemployed is to review the mechanisms of phasing out or stopping benefit payments once an unemployed person takes up employment. For instance, a few countries (Japan, Korea) pay re-employment bonuses as a percentage of any “remaining” unemployment benefits that unemployed people would, for a given maximum period, have been entitled to had they remained unemployed. Unemployment insurance benefits in Switzerland are, during a limited period, paid as a proportion of the difference between previous and current earnings and therefore enable benefit recipients to improve their income situation by taking up lowerpaid jobs on a temporary basis. Finally, a more gradual benefit phase-out (e.g. in proportion to the number of hours worked above an allowable limit) is also preferable to a system whereby the entire amount of benefits is lost once working hours or earnings exceed a given threshold.


15

EXECUTIVE SUMMARY

A number of countries have recently introduced or refined employment-conditional benefits, to supplement in-work incomes. These in-work benefits are often specifically targeted towards low-wage employees and represent a potentially powerful instrument for improving the incomes and work incentives for particularly vulnerable groups without compromising the poverty-reducing capacities of existing out-of-work benefits. A number of studies have demonstrated that the effectiveness of these measures very much depends on specific implementation details as well as the resources devoted to them. The recent adoption of these measures in a number of countries as well as their continued evolution illustrates the importance and usefulness of monitoring tax-benefit systems and providing detailed information that permits comparing relevant reform experiences across countries.

16


ISBN 92-64-01515-9 Benefits and Wages: OECD Indicators 2004 Edition © OECD 2004

Chapter 1

Elements of Tax-benefit Systems

Introduction 1. Overview of key benefits 2. Main features of social transfers a) Unemployment insurance b) Unemployment assistance c) Social assistance d) Benefits available to the young unemployed e) Housing benefits f) Family benefits g) Childcare benefits h) Lone-parent benefits i) Employment-conditional benefits 3. Tax treatment of benefits and interactions between tax-benefit instruments


17

1. ELEMENTS OF TAX-BENEFIT SYSTEMS

Introduction Expenditure levels, such as those shown in the previous chapter, are useful indicators of the overall importance of different types of transfer. At the same time, monetary totals are not sufficient for understanding the net effects of taxes and transfers on individual households’ incomes. This chapter provides an overview of the institutional features of tax-benefit systems including the eligibility and entitlement rules governing different types of social benefits, their tax treatment and the way in which part-time or casual earnings influence benefit amounts. The information presented here sheds light on the structure of benefit systems and provides a background for understanding the quantitative effects of taxes and benefits on household incomes discussed in later chapters. More detailed descriptions on countries’ tax-benefit systems can be found in country chapters available on the Internet at www.oecd.org/els/social/workincentives. Following an overview of the key benefits in Section 1, the second Section compares eligibility and entitlement rules across countries and types of benefit. As in the remainder of this volume, the focus is on cash benefits available to able-bodied individuals of working age and their families.1 Section 3 examines the tax treatment of benefits and discusses how interactions between different types of benefit and taxes can reinforce or weaken the policy effectiveness of individual instruments.

1. Overview of key benefits Table 1.1 provides an overview of benefits that exist in the countries covered in this report. Most countries operate insurance benefit schemes that offer temporary compensation for lost earnings if certain conditions are met by the claimant (unemployment insurance or UI). As this benefit type is based on insurance principles, claimants must have contributed to the insurance fund over certain periods in order to be eligible for the benefit. Claimants must be actively looking for work and, in most cases, unemployment has to be involuntary. As earnings replacement benefits, UI benefits are taxable and/or subject to social security contributions in most countries but are taxexempt in others. Unemployment insurance is limited in duration in most countries. For unemployed persons whose entitlement to UI benefits has expired or whose work record is insufficient to make them eligible in the first place, financial assistance exists in two forms: ●

18

Unemployment assistance (UA). Such payments may also be conditional on employment record and frequently have a limited duration. As UI benefits, they are only available to those actively looking for work. While both UA and UI benefit schemes are often financed by contributions to unemployment insurance funds, the main purpose of UA benefits is the provision of a minimum level of resources during unemployment rather than the insurance against lost earnings. As a result, UA benefits tend to be lower and less directly dependent on previous earnings. They are reduced if other incomes are



Table 1.1. Types of social transfers1 2002 Unemployment

Family benefits (FB)

Social assistance (SA)

Housing benefits

[3]

[4]

Universal [5]

Means-tested [6]

Lone-parent benefits2

Childcare benefits (CCB) Employment conditional benefits Non-parental care Parental care [8] [9] [10]

Australia Austria Belgium Canada3 Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland

– Y Y Y Y Y Y Y Y Y Y Y Y

Y Y – – – – Y Y Y Y – – Y

Y Y Y Y Y Y Y Y Y – Y Y Y

Y SA – SA Y Y Y Y Y Y Y Y SA

– Y Y – – Y Y Y Y Y Y Y Y

Y – – Y Y – – Y – – – Y –

Y – – Y – FB FB Y T – FB Y Y

Y – Y Y – – Y Y Y – – – Y

Y – Y Y – Y – Y Y – – – –

Y Y – – Y – Y Y Y – Y – Y

Italy Japan Korea Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland United Kingdom United States

Y Y Y Y Y – Y Y Y Y Y Y Y Y Y

– – – – Y Y – – Y – Y Y – Y –

4

Y Y Y Y – Y Y Y Y Y Y Y Y Y

Y SA SA SA Y Y Y Y – Y – Y SA Y –

– – – Y Y – Y – – Y – Y Y Y –

Y Y – – – Y – Y Y Y Y – – – Y

– Y Y T T Y Y CCB T – T Y – – T

– Y – – Y Y – – – – – – – Y Y

– – Y Y Y – Y – – – – – – Y Y

– – – Y – – – Y – Y – – – – –

[7]

1. “Y” indicates that the specific benefit or tax credit exists in this country. Where no specific housing or lone-parent benefit is available, “SA” (social assistance), “FB” (family benefit) or “CCB” (childcare benefit) indicate that housing or lone-parent specific provisions exist as part of these schemes. 2. “T” indicates different tax provisions or specific tax allowances for lone parents where no other benefits are available. 3. At a federal level, a refundable child tax credit, Canada Child Tax Benefit (CCTB), serves as family benefits. 4. Social assistance (reddito minimo di inserimento) was at an experimental level and concerned only 305 municipalities (out of more than 8 000) in 2002. It is not taken into account in the taxbenefit calculations shown in Chapters 2 and 3. Source: OECD.

19

ELEMENTS OF TAX-BENEFIT SYSTEMS

Assistance [2]

1.

Insurance [1]


available although means-testing tends to be less comprehensive than for minimum income or social assistance benefits. ●

Those who qualify for neither UI nor UA may receive general minimum income or social assistance (SA) benefits with central or local governments acting as providers of last resort to secure a minimum standard of living. The main eligibility criteria relate to available resources and entitlements do not depend specifically on claimants’ work history. Income and asset tests can be very restrictive and take into account the resources of other persons living with the benefit claimant. SA benefits often “top-up” income from other sources so as to ensure that the family as a whole achieves a minimum standard of living. Given that larger families require more resources to secure a given minimum standard, such top-ups are most likely when the benefit claimant has dependent family members.

Households with high housing costs and low income may qualify for housing benefits. These cash-benefits may be administered as part of the SA programme or may be available as separate transfer payments.2 The presence of dependent children gives rise to family benefit (FB) entitlements in most countries (the definition of what constitutes a “dependent child” varies considerably across countries). These are often “universal” (i.e. the amount paid per child does not depend on family income). Childcare benefits (CCB) can help parents who are working or looking for work to cover childcare costs. Countries that do not have centrally administered childcare benefit schemes may have locally based schemes. Alternatively, care for children at home may be encouraged by means of “non-activity” tested benefits to compensate the loss of earnings of the person who stays at home. Most countries provide special benefits for lone parents either in the form of additions to regular family or childcare benefits or as separate programmes. Employment-conditional (or “in-work”, IW) benefits are available to people entering paid employment, and sometimes to people already working but having low household incomes. Just under half of all countries covered in this report provide such benefits to increase financial incentives to work and/or to reduce the risk of falling into poverty for families with at least one person in employment.

2. Main features of social transfers This section presents a more detailed discussion of the policy rules governing the different types of social benefit listed above. All data refer to 2002 unless otherwise mentioned. It should be noted that the distinction between different types of benefit is often not clear-cut. Different benefits may have similar purposes while one particular type of benefit can be designed to address a number of different contingencies. While this section proposes criteria for distinguishing between different programmes, it is clear that no particular categorisation will be ideal for all possible uses of cross-country comparisons.

a) Unemployment insurance Table 1.2 shows information concerning the calculation of UI benefits.3 These benefits exist in all but two of the countries covered here. In Denmark, unemployment insurance membership (and contribution to the insurance fund) is voluntary, but covers most employees. In Finland and Sweden, insurance fund membership is also optional but non-

20



Table 1.2. Unemployment insurance benefits In 2002, for a 40-year-old single worker without children, with a 22-year employment record1 Employment (E) Insurance is and voluntary (V) or contribution (C) compulsory (C) conditions for employees [1] [2]

Minimum benefit3

Waiting period (days)

Maximum duration (months)

Initial payment rate (% of earnings base)

Earnings base2

[3]

[4]

[5]

[6]

Maximum benefit3

National currency

% of APW

National currency

% of APW

Casual employment

Additions for dependent family members

[7]

[8]

[9]

[10]

[11]

[12]

–

–

–

–

–

–

–

–

–

–

–

E + C: 1 year in 2.

C (above an earnings limit)

0

9

55

Net

–

–

13 301

56

No reduction up to EUR 3 618, total loss above. Exception: benefit reduced when < 16 days/ month and net earning less than benefit.

Each dependant: EUR 354.

Belgium

E + C: 468 days in 27 months.

C

0

Unlimited

60 (50 after 1 year).

Gross

8 499

28 (25)

11 831

39

Maximum: supplement of EUR 2 214 for certain types of social employment, limit of EUR 3 370 for artistic employment.

If dependants, minimum benefit is increased to EUR 10 118.

Canada4

E + C: 630 hours in 1 year.

C

14

9

55

Gross

–

–

21 476

55

Up to 25% of benefits or CAD 2 600, whichever is higher.

Family supplements depend on income plus age and number of children.

Czech Republic

E: 12 months in 3 years, C: 6 months in 3 years.

C

7

6

50 (40 after 3 months).

Net

–

–

123 000

60 (64)

Any income from work cancels all unemployment insurance entitlements.

UI maximum benefit level increases depending on number and age of children.

Denmark

E: 52 weeks in 3 years, C: membership fee.

V

0

48

90

Gross less 8% SSC.

157 044

52

Wages reduce benefit by same amount.

–

Finland

E: 43 weeks in 2 years, C: 10 months.

V

7

23

Working hours < 75% of full time. Benefit reduced by 50% of gross income. Benefit plus income < 90% of reference earnings.

Supplements: EUR 1 112, 1 633, 2 105 for 1, 2 and 3 or more children respectively.

France

C: 4 months in 18.

C

8

30

Basic benefit Gross (excluding (21% of APW) additional holiday plus up to 45% pay) less soc. sec. of earnings exceeding contributions. basic benefit. 57-75

Gross

Depends on employment record.

–

–

8 848

40

None

64 802

295

Income < 70% of reference – earnings, hours worked/month < 136 and duration < 18 months. Benefit reduced depending on income ratio to reference earnings.

21


–

1.

Australia Austria

Employment (E) Insurance is and voluntary (V) or contribution (C) compulsory (C) conditions for employees [1] [2]

Minimum benefit3




Earnings base2

[3]

[4]

[5]

Maximum benefit3

National currency

% of APW

National currency

% of APW

Casual employment


[6]

[7]

[8]

[9]

[10]

[11]

[12]


Germany

E: 12 months, C: 12 months in 3 years.

C

0

12

60

Net

–

–

33 840

103 (99)

Hours worked < 15/week, income Rate increases by < EUR 400/month. Total loss 7 percentage points above limits, no reduction. if children.

Greece

E + C: 125 days in 14 months or 200 days in 2 years.

C

6

12

40-50

Gross

3 195

28

3 357

29

Benefit withdrawn if earnings. Exceptions exist for casual and part time work.

Benefit increased by 10% for each.

Hungary

E + C: 200 days in 4 years.

C

0

9

65

Gross average earnings in previous 4 quarters.

217 080

20

434 160

40

For short term (< 90 days) employment benefit is suspended. For "employment booklet" programme the benefit is reduced by amount earned.

–

Iceland

E + C: 10 weeks.

C

0

60

Fixed amount (34% of average production worker).

–

–

–

–

–

For occasional employment < 2 days, benefit is reduced proportionally.

ISK 35 360 per child.

Ireland5

C: 39 weeks in 1 year (or 26 “reckonable” contributions in 2 years).

C

3

15


–

–

–

–

–

Benefit is not paid for any day or partial day of employment. Earnings are not assessed.

Supplements of EUR 1 110 per child, EUR 5 203 per adult.

Italy6

C: 52 weeks in 2 years.

C

7

6

40

Average gross earnings in previous 3 months.

–

–

11 194

52

No benefits if receiving earnings from employment except for CIG scheme.

–

Japan

E + C: 6 months in 1 year (at least 14 days each month).

C

7

10

60-80

Gross earnings excluding bonuses paid during last 6 months.

–

–

3 853 440

91

No benefits if employed.

–


22

Table 1.2. Unemployment insurance benefits (cont.) In 2002, for a 40-year-old single worker without children, with a 22-year employment record1


Table 1.2. Unemployment insurance benefits (cont.) In 2002, for a 40-year-old single worker without children, with a 22-year employment record1 Employment (E) Insurance is and voluntary (V) or contribution (C) compulsory (C) conditions for employees [1] [2]

Minimum benefit3




Earnings base2

[3]

[4]

[5]

C

14

7

Luxembourg E + C: 26 weeks in 1 year.

C

0

Netherlands E: 26 weeks in 39, C: 52 days in 4 of 5 years.

C

0

Korea

E + C: 6 months in 18.

Maximum benefit3

National currency

% of APW

National currency

% of APW

Casual employment


[6]

[7]

[8]

[9]

[10]

[11]

[12]

50

Gross earnings paid in previous 3 months.

5 978 700

26

12 600 000

55 (62)

12

80

Gross

–

–

35 707

18

70

Gross

11 175

37

41 340

If income divided by number of benefit days entitled is over 60% of unemployment insurance benefit then excess deducted.

–

114

Reduced if earnings > 10% of maximum benefit due.

Rate increases by 5 percentage points if children.

135

If < 5 hours/week, benefit reduced by 70% of gross earnings. If > 5 hours/week, proportional reduction.

Supplementary benefits for low-income households to bring income up to a minimum guaranteed level.

–

–

–

–

–

–

–

–

–

–

–

Norway

E + C: Earnings above a minimum level.7

C

3

36

62

Gross

54 170

19

325 020

111

–

NOK 4 420 per child.

Poland

E + C: 365 days in 18 months.

C

7

18

Fixed amount (26% of average production worker).8

–

–

–

–

–

Gross income disregard of up to PLN 4 560 (half the minimum pay).

–

Portugal

E + C: 540 days in 2 years.

C

0

24

65

Gross plus bonuses.

4 176

50

12 528

149

If income < UI benefit and hours 25 < 75%, unemployment insurance benefit = (UI benefit – income) * 1.25

–

Slovak Republic

E + C: 24 months in 3 years.

C

0

9


Gross

–

–

70 740

52

Any income from work cancels unemployment insurance entitlement.

–

Spain

C: 360 days in 6 years.

C

0

24


Gross

4 643

28

10 524

64

Benefits are reduced in proportion to hours worked.

Increased minima and maxima if children.

Sweden

E: 6 months in last year, C: 12 months.

V

5

14

80

Gross

83 200

35 (30)

181 800

76 (70)

Benefits are reduced in proportion to days worked.

–

1.

New Zealand –


23

Employment (E) Insurance is and voluntary (V) or contribution (C) compulsory (C) conditions for employees [1] [2]

Minimum benefit3




Earnings base2

[3]

[4]

[5]

Maximum benefit3

National currency

% of APW

National currency

% of APW

Casual employment


[6]

[7]

[8]

[9]

[10]

[11]

[12]

Switzerland E + C: 6 months in 2 years.

C

5

24

70

Gross

–

–

74 760

117

“Compensation payment for Rate increases by intermediate earnings”: benefits 10 percentage points are equal to 70% of the difference if children or low income. between insured earnings and current earnings.

United Kingdom

C: 2 years.

C

3

6


–

–

–

–

–

Income > GBP 260 (520 for – couples) reduces benefit by same amount.

United States

E: 20 weeks (plus minimum earnings requirement).

C

0

6

53

Gross

4 212

13

15 600

48

Earnings smaller than gross benefit are deducted at a 50% rate; 100% reduction with that part of earnings which exceeds gross benefit.

USD 312 for each dependant.


1. All benefit amounts are shown on an annualised basis. “–” information not available or not applicable. 2. Gross = gross employment income; SSC = (employee) social security contributions; Net = Gross minus income taxes minus SSC. 3. Benefit amounts are shown for a person with previous full time employment. If the per cent of average production worker (APW) value for 2001 differs by more than +/–2 from the 2002 percentage, then the 2001 value is shown in parentheses. 4. The duration of Employment Insurance (EI) payments depends on the unemployment rate in the relevant EI region. The 40 week duration shown here relates to an unemployment rate of 7.1% which is the 2002 average across relevant EI regions in Ontario. 5. Where weekly earnings while in employment were below certain amounts, reduced rates of payment are made. If dependent adult is employed, supplement is reduced or suppressed depending on income level. 6. For employees with a temporary reduction of working hours there is also the CIG (Cassa Integrazione Generale) scheme which pays benefits of 80% of average gross earnings for non-worked hours. 7. At least 23% of APW during the preceding calendar year or 19% of APW averaged over three years. 8. The basic benefit amount is adjusted with the length of the employment record: 80% for under 5 years, 100% for 5-20 years and 120% for over 20 years. Source: OECD.


24

Table 1.2. Unemployment insurance benefits (cont.) In 2002, for a 40-year-old single worker without children, with a 22-year employment record1

1.


members are entitled to unemployment assistance. In Finland, they may also be entitled to basic (non-earnings related) unemployment insurance benefits.4 The insurance mechanism is reflected in the contribution requirements (which exist in all countries operating UI benefits) as well as the dependence of benefit amounts on previous earnings. Benefits in Iceland, Ireland, Poland and United Kingdom are, however, provided as flat amounts. As a result, only a small part of high-income employees’ earnings is replaced by UI benefits in the event of unemployment. While flat-amount benefits can in principle also give rise to very high replacement rates for those with very low earnings, the relevant benefit amounts range from only 14% of an average production worker wage (APW)5 in the United Kingdom to a maximum of 34% of APW in Iceland. Gross benefit amounts in these countries are therefore likely to be substantially lower than full-time wages, even for low-paid employees. In countries where benefits are determined in relation to previous in-work earnings, the relevant percentages (column 5 of Table 1.2) only apply within given earnings ranges so that replacement rates for the highest-earning employees are lower. The earnings intervals where benefits are proportional to previous wages vary greatly across countries, however. In Greece, benefit amounts vary only within a narrow range so that the benefit, while nominally earnings-related, largely operates like a flat-rate benefit. Maximum UI benefits in France can be as high as three times average earnings. There is no upper limit for earnings related benefits in Finland. Payment rates and maxima/minima are, however, not sufficient for comparing the relative generosity of UI benefits. In the case of earnings-related benefits, the definition of the earnings base is a crucial factor. In most countries, benefits are computed in relation to average earnings over a longer period. Perhaps more importantly, the payment rate can apply to gross earnings (e.g. Hungary or Japan), net earnings (e.g. Austria or Germany) or some intermediate definition (Denmark, Finland). Compared across countries, lower payment rates will therefore not necessarily result in lower benefit levels. Finally, the tax treatment of UI benefits can have a large influence on the net income available to an unemployed person. While gross benefits are frequently too low to cause substantial income tax (IT) burdens (even if they are taxable in principle), social security contributions (SSC) payable on benefits can be considerable (see Section 3 below for more details). Chapters 2 and 3 will come back to the various determinants of UI benefit levels and show their net effects using detailed model calculations. Required work/contribution periods for benefit claimants are mostly between 6 and 12 months but are markedly shorter in France and Iceland and longer in Belgium, Portugal, Slovak Republic and United Kingdom. For an unemployed person with a long employment history (22 years in the table), the maximum benefit duration is longest in Denmark, Iceland, Norway, Portugal, Spain and Switzerland and shortest (around six months) in the Czech Republic, Italy, Korea, United Kingdom and United States. The maximum duration may depend on: the employment or contribution record (Belgium, Finland, Greece, Netherlands, Slovak Republic, Spain and Switzerland), age (Portugal and Sweden), or a combination of the two (Austria, France, Germany, Japan and Korea) or can be fixed. In Canada, benefit durations are adjusted based on local unemployment rates, while in Norway and the United States durations depend on the level of previous earnings. In Belgium, payment rates can decrease over time from 60% to 50% for those with no


25


dependants and in the Czech Republic, Slovak Republic and Spain, payment rates decrease for all family situations. In the majority of countries, benefits are not available immediately upon becoming unemployed but only after waiting periods of between 1-2 weeks. These built-in delays reduce the income available during the initial phase of unemployment and, at the same time, the number of benefit claims for very short unemployment spells (e.g. due to transitions between jobs).

b) Unemployment assistance Unemployment assistance (UA) generally succeeds unemployment insurance once the latter has been exhausted (“UI” in column 1 of Table 1.3). In Australia and New Zealand, where UI does not exist, unemployed people are entitled to UA benefits which share characteristics of both UA and SA for an unlimited duration. Claimants do not need to have an employment record to qualify for benefits but are required to look for work. In some countries, people who do not qualify for UI at all (but are actively looking for work) can claim UA benefits without any employment record conditions (Finland, Ireland and United Kingdom) or under the condition of a minimum period of previous employment (Greece, Portugal, Spain, Sweden). Several countries allow UA benefit receipt for unemployed people with small amounts of employment incomes. Once these exceed specific limits (column 8 of Table 1.3), benefits are either stopped completely (e.g. in Austria) or reduced. In the latter case, the withdrawal rates range from 50% (Finland) to 100% (France, United Kingdom). In most cases, incomes from sources other than employment also reduce benefit entitlements. With the exception of the Netherlands and Sweden, UA benefit levels are also affected by the income of other family members, which can severely reduce the incentives for spouses of long-term unemployed persons to maintain or look for employment. In Ireland and the United Kingdom, maximum UA amounts (columns 5 and 6) are equal to UI benefits but are reduced by incomes from other sources. In Finland, Netherlands and Sweden, maximum UA is similar to minimum UI benefit amounts.

c) Social assistance People without resources can, in most OECD countries, fall back on governmentprovided minimum income financial assistance. Depending on their implementation, these last-resort safety nets can have a major impact on both the extent and the intensity of financial poverty and, by providing a minimum level of resources, may support independence from family support networks where they exist. At the same time, the conditionality on resources, including employment income, reduces any short-term gains of attempts to escape poverty by pursuing other income sources. Means-tests can also have adverse effects on other behavioural dimensions, including the decision of entitled persons whether or not to claim the benefit. These issues have received considerable attention (Hernanz et al., 2004; Standing, 2003) and undesired effects of minimum income schemes have partly been addressed by seeking to improve the design and implementation of these transfer programmes. For instance, in order to preserve some financial gain from taking up or maintaining low-paid employment, some income is disregarded when assessing the income on which SA benefit entitlements are based.

26



Table 1.3. Unemployment assistance benefits In 2002, for a 40-year-old single worker without children, with a 22-year employment record1 Employment Waiting period record in months2 (days)

Maximum benefit3 Duration (months)

Payment rate

Tests on Limits and disregards


[8]

[9]

National currency [5]

% of APW [6]

9 594

20

Yes

Family

Disregard of AUD 1 612, 50% withdrawal up to AUD 3 692, 70% above. Couple: no UA for higher earner once income above AUD 14 560, spouse’s UA reduced by 70% for earnings above this amount.

Parenting payment for dependent children (generally replaces UA). Partner allowance.

92% of basic 12 237 UI benefit4

51

Yes

Family

No UA if earnings above EUR 3 618 (exception if time worked is less than 16 days and earnings less than maximum UI, then UA is reduced). UA reduced if spouse's earnings above EUR 5 220. Limit increased by EUR 2 610 for each child.

Each dependant: EUR 354.

Assets

Income

[1]

[2]

[3]

[4]

Australia

–

7

No limit

Fixed amount

Austria

UI

–

No limit

Finland

–

5

No limit

Fixed amount

5 915

21

–

Family

Limits can be suppressed under certain conditions. Spouse’s income excluded if less EUR 1 112, 1 633 and 2 105 for 1, 2 than EUR 2 832. Disregards of EUR 3 036, 10 176 and 1 272 for single, couple and and 3+ children respectively. dependent child respectively. UA reduced (by 75% for a single, 50% for a couple) for gross earnings exceeding disregard; also reduced for earnings from part-time work.

France

UI and 60 in last 120

–

6 months (renewable)

–

4 810

22

–

Family

Disregard for earnings less than EUR 6 413 then 1/1 reduction up to EUR 11 222; for couple limits are EUR 12 826 and 17 635.

UI

–

No limit

53% of net earnings

28 620

87

–

Family

Spouse’s income disregard is equal to the UA benefit they would receive if unemployed. If children, rate raised by 4 percentage points.

Germany

[7]

Some for older workers depending on age and employment record.

Greece

UI or 2

–

12

Fixed amount 2 400

21

–

Family

Income less than EUR 5 000. UA is zero if there are any earnings.

Ireland

–

3

No limit

Fixed amount 6 178

24

Yes

Family

If working less than 3 days/week UA is reduced by 60% of average net weekly earnings. EUR 4 098 per adult, EUR 874 per child.

Netherlands

UI

–

24

Fixed amount

11 175

37

–

New Zealand

–

7-70

No limit

Fixed amount

9 637

24

–

Family

70% reduction in net benefit If gross income is less than NZD 4 160.

Rates depend on family type.

Portugal

UI or 6 in last 125

–

12 (after UI) or 24

Fixed amount

3 341

40

–

Family

Income less than EUR 3 341/person. UA is zero if there are any earnings.

EUR 835 if dependants.

Spain

UI or 3-6

–

18

Fixed amount

3 980

24

–

Family

Income less than EUR 3 980/person. No disregards.

Older workers with dependants: maximum EUR 2 653 for 6 months.

Sweden

6 or recent graduate

5

14

Fixed amount

83 200

35 (30)

–

United Kingdom

–

–

No limit

Fixed amount

2 805

14

Yes

Individual If working less than 5 hours/week, benefit is reduced by 70% of gross earnings. Proportional reduction if working longer hours.

Individual Benefit not paid for days worked. Proportionally lower after part-time work.

–

–

UI: unemployment insurance; UA: unemployment assistance. 1. All benefit amounts are shown on an annualised basis. “–” information not available or not applicable. 2. UI = Exhaustion of unemployment insurance is required to qualify for unemployment assistance. 3. If the per cent of APW value for 2001 differs by more than +/–2 from the 2002 percentage, then the 2001 value is shown in parentheses. 4. Rate can be increased to 95% for low unemployment insurance levels. 5. There is no employment condition for a first-time job seeker with dependants. Source: OECD.

27


Earnings disregards are GBP 260, 520 and 1 040 for single persons, couples and special GBP 1 596 for spouse, GBP 1 924 for groups (e.g. lone parents) respectively. Other forms of income reduce benefits child under age 16, plus various on a 1/1 basis. premiums.

1.

Family

–


However, as long as other resources reduce benefit levels, trade-offs between guaranteeing a minimum income level for those who are unable to support themselves and minimising avoidable benefit dependency will remain. SA is usually paid to the entire household and the resources of the entire household are considered for the assessment. The benefit amount available to the household as a whole is therefore affected by all household members’ income and labour market situation (and, often, assets). There is a trade-off between verifying that a family has sufficient means (“targeting”) and encouraging household members to pursue available opportunities to increase working hours or re-enter paid employment. This sub-section considers the key determinants of benefit amounts for eligible persons. The main eligibility criterion is the insufficiency of household resources. However, additional criteria often apply, including differences in the strictness of any requirements to be available and looking for work or, as in the United States, requirements to participate in employment, training or workfare activities. Perhaps more importantly, countries vary considerably in terms of how formal eligibility rules are implemented in practice. Implementation aspects may themselves be specified formally or may be characterised by benefit agencies’ or social workers’ discretion. These issues are not covered here. Detailed discussions of eligibility criteria and their implementation are provided by Behrendt (2002), OECD (1998a, 1998b, 1999), Standing (2003), Puide and Minas (2001) and Moffitt (2003). Table 1.4 presents a summary of the main features influencing SA amounts. Benefit amounts and other relevant rules often vary by region and the first column clarifies how this variation is accounted for in this study. “National rates” indicates that rates are uniform throughout the country and “national guidelines” that national rates are recommended without being strictly enforced (in which case these guidelines are adopted for the purpose of this study). Where there is regional variation in payment rates, two approaches may be followed: the national average is known and used (“national average”), or the information presented in this report relates to one particular representative region (“regionally determined”). Maximum benefit amounts for a single person (column 2) vary between 5% of APW in the United States and 36% in Luxembourg. The rates at which benefits are reduced range from initially 50% in Portugal and 75% in Canada (and for the Italian reddito minimo di inserimento experimental scheme) to 100% in most other countries. In the latter countries, considerable income or earnings disregards often exist (Denmark, Finland, Germany, Luxembourg, United Kingdom) so that relevant incomes only reduce benefit amounts on a one-for-one basis once they exceed the disregard amount (column 6). In all countries, benefit amounts depend on family size and composition. SA schemes are designed to provide the resources required to satisfy basic needs and these differ between households of different sizes and structures. Comparing the amounts paid for the first person to those granted for additional household members is therefore particularly interesting because they imply certain scales of relative financial needs of different household members. For a second adult (typically a partner or spouse) in the household, additions to the maximum benefit amount range from zero and 11% (Poland and Spain) to 100% (Denmark and Portugal) of the respective single rates while for children, the range is zero and 8% (Hungary, Iceland, Poland, Luxembourg and Netherlands) to more than 70% (Czech Republic, Finland, Germany, Sweden, United Kingdom and United States). It is important to note, however, that maximum benefit amounts alone do not allow us to fully assess the relative generosity of countries’ SA schemes. In addition to the

28



Table 1.4. Social assistance benefits1 2002 Maximum amounts (in % of APW)2 Determination of rates

Head of household [2]

[1]

Spouse/ partner [3]

Means-test

Per child

Other

Disregard

[4]

[5]

[6]

Benefit withdrawal [7]

Benefits excluded [8]

Topping-up of unemployment benefits is possible [9]

Australia3

–

–

–

–

–

–

–

–

Austria

National average.

19

12 (9)

6

–

None

100%

Family.

–

Belgium

National rates.

23

8

Depends on age and number of children.

4-10

–

EUR 310 (250) net income per year with (without) children.

100%

Family.

Rare.

Canada (Ontario)4

Regionally determined.

16

12


4-5

–

Depends on family size.

24

17


13-17

Dependant.

17

–

31

31

1st child.

Rent.

–

DKK 24 000 if part of employment scheme.

100%

–

No.

16

11


9-12

Rent, health care, work related expenses.

–

20% of net earnings (maximum EUR 1 200).

100%

None.

Yes.

20

9

Of a lone parent. 1st child of a couple. 2nd child of a couple. Additional child.

9 0 5 9

–

Upon taking up employment: 100% of earnings for 3 months, then 50% for 9-12 months.

100%

Specific family and housing benefits.

–

11

9

Depends on age of child.

9 4 2-11

Earnings of EUR 1 752.

100%

Child-raising allowance, inwork benefit Mainzer Modell.

–

Czech Republic5 National rates.

Finland

National average.

France

National rates.

Germany

National rates.

Greece

–

Hungary

National guidelines.

Age > 25. Age < 25.

Age > 25.

If unemployed and benefits exhausted. Age > 18.

10

–

None.

–

–

20

5-10

Adult. Lone-parent supplement. Rent and heating.

–

–

–

–

–

16

–

–

–

None.

– 100%

– None.

– No.

29


National rates.

75% – (100% after 2 years)

1.

Denmark

–

2002 Maximum amounts (in % of APW)2 Determination of rates [1] Iceland (Reykjavik)


Age > 17.


Spouse/ partner [3]

31

25

Ireland

National guidelines.

24

16

Italy6

Regionally determined; experimental scheme.

16

9

Japan5 (Osaka/Tokyo)


Depends on age of family members.

24

13

Means-test Benefit withdrawal [7]


None.

100%

Child support, family and rent benefits.

Per child

Other

Disregard

[4]

[5]

[6]

–

3

Depends on number of children. 1st child of a lone parent.

7-8


6-7


Depends on number of children.


Unemployed age 18-24 living at home. Funeral costs, dental bills, etc.

16

Adult dependant. Rent/mortgage interest payments.

16 –

–

100%

Family.

Rare.

–

25% of labour income.

100%

None.

–

Medical and long-term care aid. Housing costs.

4

Net earnings of at least JPY 100 080 (up to JPY 402 720 for higher earnings).

100%

–

Yes.

Medical and educational aid.

–

15% of income earned under specific programmes.

100%

None.

Yes.

–

–

13

Korea

National rates.

16

10

Luxembourg

National rates.

Netherlands

National rates.

Age > 25.

36

18

3

Supplementary adult.

10

30% of payment rate.

100%

Family.

–

Age > 22.

30

13

–

Supplement for lone parent.

9

None.

100%

Family and housing.

–

New Zealand3

–

–

–

Norway

Social worker discretion, national guidelines adjusted regionally.

30

7

–

–

–

–

–

16 4

–

None.

100%

None.

–

Poland

National rates, social worker discretion for periodic assistance.

Permanent benefit.

21

–

–

Periodic assistance; temporary benefit depending on family situation.

–

None.

100%

–

Portugal

National rates.

Age > 17.

20

20

10

Adult.

14

Upon taking up employment: 50% of earnings for 1 year.

100%

Family and housing.

1st child of a couple. 1st child of lone parent.

9-10

4

–

Rare.

–


30

Table 1.4. Social assistance benefits1 (cont.)


Table 1.4. Social assistance benefits1 (cont.) 2002 Maximum amounts (in % of APW)2 Determination of rates [1]


Spouse/ partner [3]

Means-test

Per child

Other

Disregard

[4]

[5]

[6]

Benefit withdrawal [7]



Slovak Republic National rates.

17

12

8

Adult.

12

None.

100%

–

Yes.

Spain (Madrid)


27

3

3

4th dependent person in household.

11

None.

100%

Family.

Rare.

Sweden5

National guidelines. Social worker discretion for supplements.

16

11

7-12

Medical costs, transport, child care, etc. Housing costs.

–

None.

100%

None.

Rare.

Switzerland (Zurich)

National guidelines, social worker discretion for supplements.

22

12

6

3

–

100%

–

12

Supplement from 3rd person aged > 16. Housing and basic medical costs, child care, etc.

8

10

Family premium.

4

GBP 260/520/1 040 for a single person/couple/ lone parent.

100%

Housing.

4

4

–

Occasional income up to USD 120.

100%

Earned Income Tax Credit.

United Kingdom

United States7

National rates, personal amount plus family premium. National rates.


1st child of lone parent.

Age > 24 or lone parent. Single person aged 18-24.

14 11 5

–

Yes.

–

31


Source: OECD.

1.

1. All amounts are shown on an annualised basis. “–” information not available or not applicable. 2. If the per cent of APW value for 2001 differs by more than +/–2 from the 2002 percentage, then the 2001 value is shown in parentheses. 3. Low-income individuals actively looking for work typically receive the means-tested unemployment assistance benefit described in Table 1.3 (unlimited duration and not subject to employment record conditions). All “Social Assistance” amounts shown for Australia and New Zealand in this publication therefore relate to means-tested unemployment benefits. In Australia, another type of benefit (Special Benefit) can be available to people in severe financial hardship, who have no other means of support and for whom no other benefit is available. Special Benefit is not considered in the results reported here. 4. Basic allowance plus shelter allowance. 5. The benefit is made up of two parts: an individual amount depending on the age of the child (and sometimes the adult) concerned; and a household amount that depends on the size of the household. 6. Social assistance (reddito minimo di inserimento) was at an experimental level and concerned only 305 municipalities (out of more than 8 000) in 2002. It is not taken into account in the taxbenefit calculations shown in Chapters 2 and 3. 7. Amounts shown for food stamps only. See Table 1.7 for information on the Temporary Assistance for Needy Families (TANF) programme.


differences in eligibility rules and implementation emphasised above, there is considerable variation in the interaction of SA with other parts of the tax-benefit system. One such difference concerns the assessment of claimants’ income and, in particular, which benefits and taxes are taken into account. While the definition of a household’s “means”, to be taken into account when determining benefit eligibility, tends to be comprehensive, it often excludes items such as family benefits (column 8). Low-income families with children would, for instance, see their SA entitlements reduced by the amount of family benefits in Finland, Germany or United Kingdom. In Finland and the United Kingdom, SA additions for children are, however, much larger than universal family benefit amounts. Family benefits are not deducted from SA in Austria, Belgium, Iceland, Ireland, Luxembourg, Netherlands or Spain. Interactions of benefit schemes – including SA – with other parts of the tax-benefit system are discussed in more detail in Section 3 of this chapter. In most countries, SA benefits can complement (or “top-up”) other incomes, whatever their source (column 9). However, in Denmark, low income is not a sufficient reason for eligibility. Instead, SA is conditional on the occurrence of a “social event” (unemployment, sickness, divorce, etc.). In several countries, recipients of unemployment benefits are often explicitly excluded from receiving SA.

d) Benefits available to the young unemployed All regular UI benefits and some UA benefits are subject to employment conditions preventing young unemployed adults with no or little work experience from being eligible. At the same time, unemployment rates of teenagers and young adults are substantially higher than for prime-age adults aged 25-54 (OECD, 2002a, Chapter 1). Special unemployment benefits for young unemployed people are in place in several countries in order to provide them with some degree of income security or to prevent them from dropping out of the labour force at an early stage. The latter purpose is reflected in requirements to participate in active labour market programmes targeted particularly towards young people (ibid.). Table 1.5 summarises unemployment benefits available to the young unemployed. A 20-year-old single person without employment record and actively looking for work can receive unemployment benefits in 11 countries. In Finland, Ireland and Sweden, all unemployed persons without employment record are entitled to UA and, as result, benefit amounts and rules are the same regardless of age. In Denmark, benefits for “newcomers” who have joined the (voluntary) unemployment insurance immediately after finishing their education can be as high as the minimum UI benefit received by non-newcomers with an employment record. In the remaining countries, benefit levels are generally lower than “regular” UI or UA benefit amounts. For instance, in Belgium, the allocation d’attente amounts to 50% of regular minimum UI benefits while support available to young people without unemployment record reaches about 80% of regular benefit levels in Australia, New Zealand and United Kingdom. Young people not entitled to unemployment benefits may still qualify for incomedependent social assistance (SA) or housing benefit (HB). Depending on household structure and income, these transfers may also top-up unemployment benefits. In Austria and Germany, SA is available in principle although parents of young claimants can be obliged by benefit agencies to provide for their children even if they live in different households. This contrasts with Denmark, Finland and Sweden, where rights to SA are more individualised: young adults count as separate benefit units, even if they live with

32


1.


Table 1.5. Benefits available to the young unemployed In 2002 for a 20-year-old unemployed single person, living alone with no family responsibilities and no employment record1 Maximum unemployment benefit2

Other benefits available3

Scheme

National currency

% of APW

Age group subject to special rules

[1]

[2]

[3]

[4]

[5]

Long-term social assistance [6]

UA

7 844

16

16-20

Unlimited

Austria

–

–

–

–

Belgium

UI

4 315

14

< 30

Australia

Duration (months)

Additional information

Housing benefits [7]

[8]

Yes

Yes

Youth allowance. Reduced benefit for those living at home. Age limit extended to 24 for students.

–

Yes

–

For those aged under 25, a 26-week (instead of 1 year) employment record qualifies for unemployment insurance.

–

Yes

–

Allocation d’attente. Benefits vary by age and are accorded after a waiting period of 5-10 months. –

Canada

–

–

–

–

–

Yes

–

Czech Republic

UI

50 760

25

–

6

Yes

Yes

Time spent studying is considered as working time.

Denmark

UI

128 700

42

–

48

Reduced

Yes

Upon joining the insurance immediately after education.

Finland

UA

3 522

13

–

Unlimited

Yes

Yes

Labour Market Support for those entering labour force for the first time and living with parents only get 60% of unemployment assistance benefit.

France

–

–

–

–

–

No

–

–

Germany

–

–

–

–

–

Yes

Yes

–

UI + UA

880

8

20-29

5

–

Yes

–

Hungary

–

–

–

–

–

No

Yes

–

Iceland

–

–

–

–

–

Yes

Yes

–

Ireland

UA

6 178

24

–

Unlimited

No

No

–

Italy

–

–

–

–

–

Yes

–

Japan

–

–

–

–

–

Yes

Yes

Korea

–

–

–

–

–

Yes

–

Family members are obliged to provide support first.

Luxembourg

UI

11 109

35

< 21

12

No

–

After a 6 month waiting period; benefit is 70% of minimum wage (40% if aged under 18).

Netherlands

–

–

–

–

–

Reduced

Reduced

Benefit receipt is exceptional since parents provide financial support up to age 21.

New Zealand

Greece

Experimental social assistance scheme (see Table 1.4). –

UA

8 022

20

–

Unlimited

–

Yes

Independent Youth Benefit for age 16-17.

Norway

–

–

–

–

–

Yes

Yes

–

Poland

–

–

–

–

–

Yes

Yes

A recent school leaver in on-the-job training or adult education (in a high unemployment area) is eligible to receive 60% of basic unemployment insurance benefit.

Portugal

–

–

–

–

–

Yes

–

–

Slovak Republic

–

–

–

–

–

Yes

Yes

– –

Spain Sweden

Switzerland United Kingdom United States

–

–

–

–

–

No

–

UA

83 200

35 (30)

–

14

Yes

Yes

–

–

–

–

–

Yes

–

UA

2 220

11

18-24

Unlimited

Yes

Yes

–

–

–

–

–

Yes

–

Waiting period of 4 months if student entering labour market without previous employment record. – If duration over 6 months, participation in training is compulsory under “New Deal” programme. –

UA: unemployment assistance; UI: unemployment insurance. 1. All benefit amounts are shown on an annualised basis. “–” information not available or not applicable. 2. If the per cent of APW value for 2001 differs by more than +/–2 from the 2002 percentage, then the 2001 value is shown in parentheses. 3. “No” indicates that the benefit exists but is not available for the young unemployed. Source: OECD.


33


their parents (Puide and Minas, 2001). In France, Italy and Spain, the incomes of unemployed 20-year-olds without employment record are likely to be strongly dependent on informal family support as they qualify for none of these social benefits. It should be noted, however, that, in addition to the cash benefits discussed here, several countries operate “safety-net” and active labour market programmes directed specifically towards recent school leavers or young people in general (OECD, 2002a, Chapter 1).

e) Housing benefits Low-income households may be entitled to receive support for housing-related costs and these forms of support can significantly reduce net housing costs or add to out-ofwork or in-work income. There is a broad range of different types of housing-related support, including cash benefits, other financial assistance (e.g. low-interest loans) and benefits in-kind (e.g. subsidised housing) with some of them available irrespective of income levels. Housing-related programmes are often the responsibility of regional, local or municipal authorities and providing a comprehensive presentation of these instruments at the country level is therefore difficult. In this study, we only consider cash benefits paid for rented private accommodation. While amounts of these benefits can be significant, it is important to bear in mind that other housing-related schemes may be in place for households whose housing situation is different (such as owner-occupiers or people living in social/subsidised housing). Table 1.6 shows that most countries include housing-related supplements as part of SA schemes (column 4), operate a separate means-tested housing benefit (columns 1-3), or both. Housing-related income tax reductions are available in Italy. For the purpose of calculating the value of housing benefits, an assumption must be made about housing costs. Unless otherwise noted, the assumption throughout this study is rented accommodation with rent amounting to 20% of APW earnings, regardless of actual income levels or employment situation (see Annex A). Maximum benefit levels in Table 1.6 are shown for a four-person household.

f) Family benefits Most social benefits (and also taxes) depend on family circumstances to some degree. For instance, the sub-sections above show family-related additions to unemployment and SA benefits. A number of benefits, however, are designed to support the family as such, with the existence of a family being the main eligibility criterion. The definition of what counts as a family in this context can vary across countries. In most cases, benefits are directed towards families with children. An exception is Italy where benefits are also available for dependent spouses. Column 5 of Table 1.7 shows the maximum age underlying the definition of a child, which is frequently higher for children in education. While age is the main factor determining a person’s child status, there can be other considerations. For instance, children may not give rise to family benefits if they have income of their own, are married or do not live with their parents. Transfers may take the form of non-wastable (or “refundable”) tax credits. These are tax reductions that are not limited by the tax liability and are therefore akin to cash benefits. Given this equivalence, they are included in Table 1.7. Benefit amounts vary and can be substantial with maximum means-tested benefits for low-income families with one child as high as 13% of APW in Australia. Non-means tested benefits for a one-child family are most generous in Austria and Luxembourg (9 and 8% of APW, respectively). Amounts

34


2002 2

Regular housing benefits

Other cash support

Description

Maximum benefit amount in % of APW3

Treatment of housing costs in social assistance

[2]

[3]

[4]

Rent assistance for benefit recipients: 75% of rent above a threshold until maximum amount is reached. Also low rent public housing for low income households.

6

–

Actual rental cost

Geographic location

Dwelling size

Income

Entitlement depends on Household type/size


Table 1.6. Cash housing benefits for rented accommodation1

[1] Australia

Yes

Yes

–

–

Yes

Austria

–

–

–

–

–

Treatment varies widely across regions.

–

Housing benefits may be provided through social assistance or other schemes, e.g. in Vienna they are for people receiving social assistance and depend upon household and dwelling size, also heating assistance is provided from October to April.

Belgium

–

–

–

–

–

No general scheme. Public low-rent housing for low-income families.

–

–

Canada

–

–

–

–

–

No general scheme.

–

Rules and payment rates determined provincially. A shelter allowance is included in the Ontario Works programme (SA) and amounts are determined by household size, income and location.

Czech Republic

Yes

Yes

No

–

No

Difference between the estimated rent required and a quotient.

6

–

Denmark

Yes

Yes

Yes

–

Yes

Difference between 60% of (adjusted) rent and own payment (18% of income with limits) subject to a maximum.

6

Rent above a threshold is paid after deducting regular HB.

Finland

Yes

Yes

Yes

Yes

Yes

80% of (limited) rent above a “deductible amount”.

16

“Reasonable” housing costs can be covered (93% limit).

France

Yes

Yes

–

Yes

Yes

Several schemes provide assistance to low-income households.

20

Basic amount included in resources used to calculate entitlement to social assistance.

Yes

Yes

–

Yes

Yes

General scheme with various ceilings (including the quality of the dwelling).

17

Rent and heating expenses in excess of regular housing benefit.

Greece

Yes

Yes

–

–

–

No general scheme. Rental subsidy for unemployed receiving benefits which may be extended for 2 years afterwards.

12

Tax allowance: 100% of rent paid up to EUR 440, 40% above up to limit of EUR 734.

Hungary

Yes

Yes

Yes

–

–

Administered by local authorities. Covers rental costs and maintenance expenses.

1

–

Yes

Yes

–

–

Yes

Maximum amount is 50% of rent up to a limit.

10

–

–

–

–

–

–

No general scheme.

–

Rent in excess of EUR 396 (less all other income) can be added. In practice, the number of recipients is very small.

Italy

–

Yes

–

Yes

–

Rent subsidies for low income households; eligibility conditions and amounts differ at regional and municipal levels.

–

Wastable tax credit.

Japan

–

–

–

–

–

No general scheme.

–

Housing costs are covered up to a limit, e.g. JPY 156 000 in Osaka/Tokyo.

Korea

–

–

–

–

–

No general scheme.

–

Additional amount based on size of household to cover rent and maintentance/repair expenses.

35


Iceland Ireland

1.

Germany

2002 2

Regular housing benefits

Other cash support

Description

Maximum benefit amount in % of APW3

Treatment of housing costs in social assistance

[2]

[3]

[4]

No general scheme.

–

Rent in excess of 10% of minimum income up to a maximum of EUR 1 488, conditional on receipt of social assistance.

10

–

Actual rental cost

Geographic location

Dwelling size

Income

Household type/size

Entitlement depends on

[1]


Luxembourg

–

–

–

–

–

Netherlands

Yes

Yes

–

–

Yes

Minimum “standard rent” must be paid by household, 100% of rent above this is paid up to a “quality allowance limit”, then 75% of remainder up to a ceiling.

New Zealand

Yes

Yes

–

Yes

Yes

70% of rent exceeding 25% of the unemployment insurance standard rates.

7

–

Norway

Yes

Yes

–

–

Yes

For social assistance recipients, the elderly and families with children aged under 18. Benefit is 70% of difference between actual and a standard “reasonable” housing expense.

10

–

Poland

–

Yes

–

–

Yes

For low income households. Rent exceeding tabulated standard cost.

7

–

Portugal

–

–

–

–

–

No general scheme.

–

Possible complement for people in sudden need (30% loss of gross income or income lower than EUR 1 659).

Yes

Yes

–

–

No

For low income households to cover rent and maintentance expenses.

22

–

–

–

–

–

–

No general scheme (tax credit instead). Some regions provide benefit.

–

–

Yes

Yes

–

–

Yes

–

–

–

–

–

Yes

Yes

–

Yes

Yes

–

–

–

–

–

Slovak Republic Spain Sweden Switzerland United Kingdom

United States

Amount also depends on age of recipient.

11

Rent in excess of housing benefit is added.

No general scheme. Some regions provide benefit for low income households, elderly persons or families with children.

–

Housing costs are added up to a limit.

Housing benefit: paid on “eligible” rent only. Amount is rent minus 65% of difference between net resources and social assistance rates (determined by family type).

20

100% of “eligible” rent is covered for social assistance claimants when family assets are less than a limit, benefit is reduced above limit up to a ceiling. Also local benefits to help pay Council Tax (Great Britain only). In the tax-benefit calculations shown in this publication, Council Tax and Council Tax Benefit are not taken into account.

No federal scheme. Housing assistance exists in some states for very low income households.

–

Rent (if it exceeds 50% of net income and with a maximum of USD 4 248) is included in the food stamps means test.

1. All benefit amounts are shown on an annualised basis. “–” information not available or not applicable. 2. There are sometimes other schemes aimed at specific groups, e.g. Denmark: elderly or disabled; Finland: pensioners and students; Greece: elderly; Sweden: pensioners. 3. For an unemployed couple with two children aged under 6 under the assumption that housing costs are 20% of the gross earnings of an average production worker. Source: OECD.


36

Table 1.6. Cash housing benefits for rented accommodation1 (cont.)


Table 1.7. Family benefits1 2002 Maximum benefit for one child Benefit amount per additional aged 3-12 child varies with:2

Upper age limit for children (student)

Means test on

Observations

[5]

[6]

[7]

[2]

Age of child [3]

Number of children [4]

3 303

7

+/–

+ from 3rd

20 (24)

Family earned income.

Family Tax Benefit (FTB) part A to help families with cost of raising children. Can be paid as a benefit or as a tax allowance.

2 836

6

–

0

15 (18)

Earned income of secondary earner in a couple.

FTB part B to provide extra help for families with one main income. Family based payment which can be paid as a benefit or as a tax allowance.

Austria

1 483

6

+/–

+

19 (27)

No

For low income families there is an extra supplement for each additional child from the 3rd.

611

3

0

0

Belgium

1 102

4

+/–

+/–

17 (24)

No

For unemployed, family benefits are increased as from 7th month of unemployment.

Canada

1 151

3

0

+ from 3rd

17

Family taxable income.

Canada child tax benefit (non-wastable tax credit). Additional supplement per child aged under 7 if no childcare expenses are claimed.

Family net income.

National Child Benefit (NCB) supplement for low income families.

Australia

4


% of APW3

Non-wastable tax credit.

3

0

–

8 563

4

+/–

0

14 (25)

Denmark

11 300

4

+/–

0

17

Finland

6 420

4

0

+

16

No

Fixed rate of increase for each additional child.

France

0

0

+

+

20

No

Family allowance: zero benefit for first child. For 2 children (under age 11) the amount per child would be EUR 653 (3% of average production worker).

1 876

9

–

–

3

Yes

Allocation pour jeune enfant: for families with young children.

1 848

6

0

+ from 4th

18 (27)

No

Kindergeld is a non-wastable tax credit in the form of a monthly tax refund (deducted from social assistance if no tax liability).

106

1

0

+/–

17 (21)

No

Employment condition: 50 days of work prior to the claim. In addition, the employer usually grants 5% of gross earnings to each worker for each child. The employer benefit and extra family benefit supplements for large families are taxable.

No

–

Germany Greece

45 600

4

0

+

15 (20)

Iceland

155 670

6

–

+

15

Ireland

1 028

4

0

+ from 3rd

15 (18)

Italy5

1 010

5

0

+

17

Three income levels used to define level of benefit: increased, basic or reduced.

No

–

Basic allowance is reduced by a percentage of income Basic allowance has an income limit of ISK 1 408 916 for a couple. Reduction is 3, above limit. Supplement is not means tested. 7 and 9% for 1, 2 and 3 children respectively. There is a supplement for children aged under 7. No

–

Household taxable income.

Benefit is paid by employers and is only granted if at least 70% of household taxable income is employment income (or earnings replacement benefits including unemployment benefits and employment pension). A spouse is considered a dependant so a couple with no children can receive family allowance. Benefits are reduced in proportion to days not worked.

37


Hungary

Family income relative to minimum living standard.

1.

1 293 Czech Republic

2002 Maximum benefit for one child Benefit amount per additional aged 3-12 child varies with:2

Japan Korea

[2]

Age of child [3]

Number of children [4]

60 000

1

0

+ from 3rd


% of APW3

Upper age limit for children (student)

Means test on

Observations

[5]

[6]

[7]

6

Gross income less employment income tax deduction.

Amount per child doubles as from 3rd child.

–

–

–

–

–

–

–

Luxembourg

2 609

8

+

+

18 (27)

No

Maximum amount by age is reached at age 12.

Netherlands

838

3

+

0

17

No

Under the previous system (which still applies for children born before 1 January 1995) the amount per child decreased with the number of children.

New Zealand

2 444

6

+

–

18

Family earned income.

Family Support Tax Credit (includes Child Tax Credit available for families not receiving benefits).

Norway

11 664

4

0

0

18

No

Supplement for child aged between 1 and 3.

Poland

510

2

0

+ from 3rd

15 (19)

Gross income per household member relative to average wage.

Benefit also paid for a dependent wife/husband aged over 60/65.

Portugal

315

4

0

–

16 (24)

Income relative to minimum wage.

Higher benefits for children aged under 1. Benefits also vary relative to family income (four levels).

9 960

7

+

0

15 (25)

Not for basic allowance since July 2002 but supplement is means tested.

The means test is based on family income relative to state social benefit amounts.

Slovak Republic BENEFITS AND WAGES: OECD INDICATORS – ISBN 92-64-01515-9 – © OECD 2004

291

2

0

0

17

Gross family income.

–

Sweden

Spain

11 400

5

0

+ from 3rd

16 (20)

No

Basic allowance remains fixed but there is a supplement from the 3rd child onwards.

Switzerland (Zurich)

2 040

3

+

0

15 (24)

No

Amounts are fixed at the level of the cantons and paid by the employer. Benefits are taxable but not subject to social contributions.

819

4

0

–

15 (18)

No

Fixed rate from 2nd child.

1 056

3

0

+

–

Yes

Temporary Assistance for Needy Families (TANF): benefit is not based on number of children but on family size at the time of application; it does not increase thereafter. The benefit amounts and durations vary by State.

United Kingdom United States5 (Michigan)

1. Family benefits including non-wastable tax credits. All benefit amounts are shown on an annualised basis. “–” information not available or not applicable. In general family benefits are not taxable unless otherwise indicated. 2. “+”: increases, “–”: decreases, “0”: remains the same, “+/–”: increases or decreases (some countries give higher rates to the youngest and oldest age groups). 3. If the per cent of APW value for 2001 differs by more than +/–2 from the 2002 percentage, then the 2001 value is shown in parentheses. 4. See also the Parenting Payment in Table 1.8. 5. Benefit amount for the first child is calculated as the difference in benefit between a 3-member and a 2-member household. Source: OECD.


38

Table 1.7. Family benefits1 (cont.)

1.


per child can be uniform but more often vary by age and/or number of children. It is interesting to note the different age profiles of child benefit amounts (column 3, where “+” and “–” indicate that benefit amounts for older children are higher and lower respectively). Differences reflect not only diverging assumptions about how age influences the “cost of children” but also differences in the rationale for providing family benefits (FB). While compensating parents for child-related expenses is one purpose of benefit payments, transfers to families with children may also form part of family policies aiming to compensate parents for a service they are providing to society. In a slight majority of countries, family benefits are not dependent on family income and are paid as universal amounts per child. Amounts per child may, however, vary depending on a child’s age or parity (i.e. the number of children). Given that family income is often negatively correlated with family size, universal family benefits that increase with the number of children can be an effective way of targeting resources towards the poor while avoiding problems (such as non take-up of benefits and negative effects on work incentives) that means-tests can give rise to. They can therefore play an important role in addressing child poverty (see Vleminckx and Smeeding, 2001). Benefit amounts are reduced for higher-income families in 13 countries (column 6). In Italy, benefits first increase with earnings (and therefore improve work incentives for lowincome groups) before being reduced once income exceeds an upper limit.

g) Childcare benefits The provision of childcare is an essential component of policies aiming to address the balance between work and family life. The implications of childcare arrangements are numerous and include fertility decisions, labour market behaviour and, not least, child development (see OECD, 2002b, 2003a, 2004). Financial support for families with small children requiring care is available in a multitude of different forms. Support may be available to all children of a certain age (see the discussion of family benefits in the previous section), or may be conditional on having children in certain types of childcare such as that provided by approved institutions or specially qualified individuals. Generous support is sometimes also available to parents taking on caring responsibilities themselves. The provision of these types of support also varies widely and ranges from direct cash benefits or tax breaks to subsidies paid to the providing institutions. Frequently, countries operate a combination of different types of support and a comparison across countries requires an understanding of their combined effect on childcare costs. In six countries, direct cash benefits are available to parents of young children and provide a partial or total compensation for certain types of childcare expenditure (Australia, Canada, Denmark, France, Korea and the United Kingdom). This is shown in column 1 of Table 1.8 which also specifies which types of care are covered (i.e. institutional childcare in approved day-care or nursery centres or services of professional carers at their own or the parents’ home). In contrast to previous editions of this Series, tax-reductions available to families with children in paid childcare are now shown alongside benefits. Such tax breaks are widespread and should be considered when comparing across countries. Being targeted towards taxpayers, tax reductions can have distributional consequences that are very different from benefits which are either available irrespective of income or targeted towards low-income families who are often BENEFITS AND WAGES: OECD INDICATORS – ISBN 92-64-01515-9 – © OECD 2004

39

2002 Benefits to care for children at home (“child-raising allowances”, “non-activity” tested) [2]

Benefits to cover costs [1]

Childcare facilities subsidised?

Income test?

[3]

[4]

Australia

Benefits paid for approved care (institutions) and registered care (child carer is officially registered). If both parents (or a lone parent) are working they are eligible for both types of Childcare Benefit. If neither parent is working they are eligible for up to 20 hours of approved care only.

Parenting payment provides income support to low- For approved care the benefit may be paid directly income persons who have primary care of children to the institution to reduce the fees charged. under 16 years of age. Families must receive no other income support payments. However, recipients can work while receiving the benefit (subject to a meanstest).

Austria

–

Childcare Benefit is combined with the post-natal parental leave scheme and entitlement is linked to previous employment record. The benefit is payable for 18 months for one parent plus (optionally) another 6 for the other parent and is independent of the other parent’s income or work status. May be combined with part-time work.2

Belgium

Not for registered care fees, but both fees of approved care and parenting payments are family income tested.


Yes, varies by state (Land).

Yes, for child-raising allowances.

Costs are tax deductible (up to a limit) if the care is in – approved centres and only for children up to age 3 (free school starts at age 4). The alternative is a nonwastable tax credit.

Yes, varies by province (Communauté).

Yes for fees paid in centres.

Canada

Federal tax allowance for expenses up to limit. The Canada Child Tax Benefit includes a supplement for families with children aged under 7: full amount for those not claiming the childcare expenses as a tax allowance, reduction of 25% of childcare costs for those claiming it. Provincial governments may cover all or part of the cost if SA beneficiaries are involved in training or similar programmes. Some benefits available at provincial level, e.g. Ontario Child Care Supplement for Working Families (OCCS).3

–

Varies by province.

For Federal tax allowance: least of childcare expenses, 2/3 of earned income (of spouse with lowest earnings) or limits based on age of child. For OCCS (greater of 50% of childcare expenses or percentage of earnings over a limit which varies with number of children).

Czech Republic

–

Parental allowance for full-time care for at least one No child up to age 4. Rate is individual social assistance rate plus 10%. A parent with low work income may be eligible under certain conditions (e.g. maximum 5 days of childcare per month).

Denmark

For low-income families, the benefit covers up to 100% of the (subsidised) fees charged by day care institutions.

–

Heavily subsidised day care is available to all households with young children. Parents only pay 30-32% of costs.

Yes for working parent (maximum 1.5 times individual social assistance amount).


40

Table 1.8. Childcare benefit schemes: description1


Table 1.8. Childcare benefit schemes: description1 (cont.) 2002 Benefits to care for children at home (“child-raising allowances”, “non-activity” tested) [2]

Benefits to cover costs [1]


Income test?

[3]

[4]

Finland

–

Home care allowance and supplement (payable for one child only) available to parents caring for own children aged under 3. Increases with number of children cared for (aged under 6).

Heavily subsidised public day care is available to all children aged under 7 (school age). For those using private day care (and not receiving home care allowance for other children) there is a private day care allowance and supplement which is paid directly to provider.

France4

The benefits cover (some or all of) the social security contribution costs due for the employment of a person to care for children aged under 6. Either at the parents’ home (AGED) or by a qualified carer in their home (AFEAMA). There is also a tax deduction for collective care costs (crèches) or for employing a home worker (in addition to AGED).

Parental education benefit (APE) is payable for families Public sector crèches are subsidised. The majority with at least 2 children (one aged under 3) on of children aged 3 and above are in school full time. condition that the parent leaves (partially or totally) employment that has lasted at least 2 years in last 5.

Germany

Tax allowance for childcare costs.

Federal child raising allowance for parents taking Yes. Children aged 3-6 are entitled to a place Child raising allowance is income tested for level of personal care of at least one child aged under 2 (some in a kindergarten. Children of other ages are admitted benefit but parent concerned can work up to 30 hours/ states provide allowances for additional periods if possible. week. afterwards).

Greece

Childcare costs can be included in family expenses which are tax deductible up to 30%.

–

Hungary

–

Childcare allowance: for parent or grandparent raising a – child up to age 3. Child raising support: for parent raising 3 children of which youngest is aged 3-8. Both are equal to minimum old age pension amount. Also childcare benefit (following pregnancy/confinement) for up to 2 years which is 70% of previous earnings up to a limit.

Work disregard of 4 hours/day for childcare allowance and child raising support (but benefit becomes taxable as soon as income is earned). Childcare benefit is lost as soon as there is earned or other income.

Iceland

–

–

–

Ireland

–

New carers allowance is a tax credit for families where Collective childcare is not well developed, very few one parent stays at home to care for children. state subsidies for private provision.

Italy

–

–

In Rome, 80% of nurseries for children aged under 3 Depends on municipality. are public and subsidised; 90% of children aged 3-5 attend school.

Japan

–

–

Municipal childcare is subsidised for children aged under 5. The government subsidy to municipal childcare increases with the amount of income tax payable by the family.

Yes in public nurseries.

Yes, ceilings based on number and age of children.

Yes for public nurseries.

1.

Day care centres and “day mothers” are heavily subsidised by municipalities.

Public day care fees are a per cent of income exceeding a limit based on family size. Same income limits apply to the supplements for home care and private day care but not to the allowances.

Yes based on the amount of income tax payable.

41


Yes based on working spouse's income up to limit, benefit reduced above limit.

2002 Benefits to cover costs [1] Korea

Benefits to care for children at home (“child-raising allowances”, “non-activity” tested) [2]

Social assistance recipients are fully subsidised for – child “educare” centre fees for children aged under 6. Tax allowance to cover childcare expenses of working mothers or lone-parent fathers up to limit.


Income test?

[3]

[4]

Public sector childcare is subsidised.

Luxembourg Either an abatement on taxable income (amount Parent must not be in the labour force and must look – depending on income level and number of children) after a child aged under 2 at home. or an abatement for childcare expenses which covers real costs up to a limit.

Entitlement for the subsidy is linked to SA receipt. For the tax allowance, no other benefits/deductions for childcare costs may be received. For the childcare benefit there are no salary conditions (but if one parent has half time job then payment is 50% of benefit) and no employment conditions if family income is below a limit (which depends on number of children).


Netherlands Formal childcare costs are tax deductible (up to a – limit), amount depends on whether care is full or part time and on number of children. There is also a tax credit for working parents.3

Local government and employers subsidise childcare Yes but subsidy also depends on employment terms centres. Children are in school from age 4. of the parent.

New Zealand –

–

All official centres are subsidised, in particular for low Yes, subsidy rate is related to income and number of income or working families. Child care subsidy for children. Maximum 37 hours of subsidised care/week. preschool children (age 0-5) is paid directly to providers. Similar program for part-time care for children aged 5-13 (OSCAR).

Norway5

Documented childcare expenses for children aged under 12 are tax deductible up to a limit.

–

Yes

No, fixed amount for one or more children.

Poland

–

For a parent caring for at least one child. Not normally available for children aged over 2.

–

Yes, fixed limit.

Subsidies for non-profit private or state facilities.

Portugal

–

–

Slovak Republic

–

For parent caring for at least one child up to age 3. –

–

Spain

–

–

Most children aged 3-5 are in subsidised public childcare – or in school. All communities provide free childcare for families with serious socio-economic difficulties.

Sweden

–

–

Subsidised by state and local governments. All 6-year Yes, parents only pay (per child) 1-3% of their gross olds get 525 hours a year of free pre-school. income in childcare fees. Percentage varies with number of children.

Switzerland

–

–

Some facilities are subsidised. Considerable variation – across regions and municipalities.

United Kingdom

Working Families Tax Credit (WFTC) allows parents to claim up to 70% of cost of childcare up to a limit dependant on number of children.

–

No. Free part time care is provided for 4-5 year olds in nursery school education or reception class.

Income from any source stops benefit.

Income and asset test for WFTC recipients.3 Person must be working over 16 hours per week.


42

Table 1.8. Childcare benefit schemes: description1 (cont.)


Table 1.8. Childcare benefit schemes: description1 (cont.) 2002 Benefits to care for children at home (“child-raising allowances”, “non-activity” tested) [2]

Benefits to cover costs [1] United States

Child and Dependent Care Credit provides tax assistance to working families paying for childcare.3

–


Income test?

[3]

[4]

The Child Care and Development Fund is the main programme which provides federal funding to subsidise childcare facilities through certificates or contracted programmes.

Yes, eligibility conditions vary widely across States. In general only families with extremely low income relative to State median or to the poverty level are eligible.

1. “–” information not available or not applicable. 2. Following a reform introduced during 2002, parents are entitled to post-natal leave/home-care benefit for 30 months (one parent on maternity leave) or 36 months (leave shared between parents). Previous employment is no longer an eligibility condition. After 8-12 weeks following childbirth, the new benefit may be combined with income from work (subject to an upper limit). 3. See Table 1.11 on employment-conditional benefits. 4. AFEAMA: aide à la famille pour l'emploi d'une assistante maternelle agréée; AGED: allocation de garde d'enfant à domicile; APE: allocation parentale d'éducation. 5. See also Table 1.10 for lone-parent benefits. Source: OECD.


43


Table 1.9. Childcare benefit schemes: examples1 Full-time care provided by a person other than the parents, in 2002 Maximum benefit for 1 child2 Type of scheme [1] Australia

Belgium

Canada

Age of child [2]

Approved care.

Benefits And Wages

Women's Work and Wages

Minimum Wages and Employment

Minimum Wages

Taxing Wages

Death Benefits

Death Benefits

On Benefits

Death Benefits

Death Benefits

Death Benefits

Death Benefits

Death Benefits

Fringe Benefits

Death Benefits

Death Benefits

Wages of Sin

The Wages Justice

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