Social Spending in the OECD: Concepts, indicators and trends

Workshop on Measuring Social Protection Statistics Indonesia - Badan Pusat Statistik, Jakarta, 14 - 16 May 2013
Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.

Willem Adema
Senior Economist, Social Policy Division, OECD

This presentation covers:

1. Background to the OECD Social Expenditure

database (SOCX)

2. Trends in social expenditure 3. Social spending after tax 4. Re-distribution 5. The ageing challenge

The OECD Social Expenditure database (SOCX)

SOCX was developed in the 1990s to monitor trends in social

spending and analyse changes in its composition in line with the SNA
cross-nationally comparable statistics on public and private social spending at the detailed
programme level to facilitate reclassification where required.

Data on the effect of fiscal measures is often of a more aggregate nature.

SOCX covers 34 OECD countries with data from 1980: shorter

time-series for countries which have joined since the mid-1990s.

Sources: national correspondents and ESTAT for EU countries and

other OECD databases: OECD Health data; OECD Database on Labour Market Programmes; the OECD Education database; and a Questionnaire on fiscal measures via the OECD Centre for Tax Policy and Administration

What is social expenditure?

The provision by public and private institutions of benefits to and contributions targeted at households and individuals during circumstances which adversely affect their welfare, provided that the provisions of the benefits and financial contributions constitutes neither a direct payment for a particular good or service nor an individual contract or transfer.

Social spending involves redistribution and/or compulsion:

Public : financial flows controlled by General Government (central + local governments + social security funds)
Private

mandatory: stipulated by legislation (i.e. employer provided sickness benefits)

voluntary: stipulated by collective agreement (i.e. occupational pensions funds, private health)

Categorisation of benefits with a social purpose

Public Mandatory
Redistribution across households

Private Voluntary Mandatory Voluntary

Means-tested Voluntary participation Employer-provided Tax-advantaged benefits, benefits, social in public insurance sickness benefits, e.g., individual retirement insurance benefits programmes. Selfbenefits accruing from accounts, occupational employed opting in mandatory contributions, pensions, employerto obtain insurance to, for example, pension provided health plans coverage. or disability insurance. Benefits from government managed individual saving schemes Non tax-advantaged actuarially fair pension benefits Exclusively private: Benefits accruing from insurance plans bought at market prices given individual preferences.

No redistribution across households

The shaded cells reflect benefits that are NOT classified as social.

OECD Social Expenditure database SOCX structure

545

1. Old Age 2. Survivors 3. Incapacity-related benefits 4. Health 5. Family 6. Active labour market programmes 7. Unemployment 8. Housing 9. Other social policy areas

Trends in public social protection

Public social spending, in percentage of GDP, 1960-2009

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Social spending and the crisis

Annual growth in real public social spending and real GDP, Index 2007= 100 (left scale and public social spending as a % GDP (right scale), 2007-2012
Australia
150
%

France
35 150 30
%

35

140 130
120

140
130

30 25 20 15
10

25

120

110
100

20 110 15
10

100 90
80

90 80 70 2007 Greece 150 140 130 120

110
%

5 2008 2009 2010 2011 2012

70
2007 2008 2009 2010 2011 2012

United States 35 150

30
%

35 30

140 130

25

120

25 20
15 10

20 110

100
90

15 10
5

100

90
80

80
70

70
2007 2008 2009 2010 2011 2012

2007

2008

2009

2010

2011

2012

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Public spending on family benefits and labour market programmes went up during the crisis
Public spending on family benefits in percentage of GDP, 2007 Increase 2007-2009 Public spending on labour market programmes in percentage of GDP, 2007 Increase 2007-2009

3.6 3.7 3.4 2.7 2.5 2.3 -0.3 2.8 1.3 0.2 1.1 0.3 1.2 0.0 0.7 0.3 0.3 0.3 0.3

0.6 0.3 0.4

United Kingdom France Sweden Germany Australia OECD Netherlands1 Japan Greece United States2 Korea

0.5 0.3

2.3
1.8 2.1 0.2 1.2 0.5 0.1

0.2
0.6

0.7

2.2
0.5 0.7 0.6 0.3 0.4 0.7 0.4 0.6

0.4

-1

1.Due to reform in 2007/8, public spending on home-help services decreased in the Netherlands. 2. Available indicators underestimate the extent of public spending on childcare for Federal countries (e.g. the United States), as relevant spending by local governments is not fully reported to Federal authorities. Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Health and Pension spending are key social policy areas in the OECD
Public social expenditure by broad social policy area, % GDP, in 2009

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Private social protection

Composition of private social expenditure by category, % GDP, 2009

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Tax systems and social spending Gross and net social expenditure

Gross social expenditure

Direct taxes and social contributions

Indirect taxes on consumption (VAT)

+ Tax break for social purposes (TBSP)

= Net social expenditure

Taxing benefits and associated consumption

Direct and indirect taxes paid by recipients of public/private benefits, % GDP, in 2009
A. Direct taxes paid by recipients of benefits

B. Indirect taxes paid by recipients of benefits

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Tax breaks with a social purpose

Revenue foregone of Tax breaks with a social purpose (excluding TBSPs to pensions), % GDP, 2009

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

Similarity in spending totals

In many OECD countries net total social spending is around 20-25% of GDP
Gross to net social expenditure, % GDP, 2009

Source: OECD Social Expenditure database (SOCX, www.oecd.org/els/social/expenditure).

The redistributive nature of tax and (cash) transfer systems varies across the OECD
Gross public transfers paid to househlods A. Average B. Share of C. Transfers ratio of public to lowest househlod transfers paid quintile disposable to lowest (A*B/100) income quintile 12.0 42.7 5.1 30.1 17.1 5.1 26.7 22.0 5.9 32.2 11.2 3.6 23.6 13.9 3.3 5.0 24.3 1.2 19.4 29.4 5.7 27.3 27.0 7.4 19.4 25.3 4.9 12.6 21.9 2.8 Redistributive effect Direct taxes and asocial security contributions D. Average E. Share of F. Taxes from Gini Percentage difference through ratio of taxes paid by lowest quintile coefficient at transfers and taxes between househlod lowest quintile (D*E/100) disposable Gini at market income and disposable income disposable income income Around 2010s Around 2000s 18.1 0.4 0.1 0.334 29% 33% 15.1 2.3 0.4 0.303 40% 41% 35.8 2.6 0.9 0.286 42% 44% 31.0 5.6 1.7 0.337 35% .. 22.4 5.1 1.1 0.336 31% 22% 8.9 5.6 0.5 0.310 9% .. 45.5 5.6 2.5 0.288 32% 31% 32.2 5.4 1.7 0.269 39% 46% 25.6 2.5 0.6 0.341 35% 31% 24.8 1.3 0.3 0.380 24% 25%

Australia France Germany Greece Japan Korea Netherlands Sweden United Kingdom United States

OECD-31 OECD-18

23.6 ..

21.7 ..

4.7 ..

26.8 ..

4.3 ..

1.2 ..

0.306 ..

35% 35%

.. 33%

Source: Calculations from OECD Income Distribution Database (www.oecd.org/social/incomedistribution-database.htm).

Populations are ageing and the old-age support ratio will halve in the OECD

Source: OECD (2011), Pensions at a Glance, OECD Publishing, Paris (www.oecd.org/els/social/pensions/PAG); United Nations, World Population Prospects - 2008 Revision.

Projections of public expenditure on pensions, 2010-2050

As a % of GDP

Greece France Germany OECD-28 Netherlands Sweden United Kingdom Korea Australia United States

13.6 14.6 10.8 8.4 6.8 9.6 7.7 0.9 3.6 4.6 0 2 4 6 8

2010 Difference 2010-2050

10 12 14 16

Source: OECD (2012), OECD Pensions Outlook 2012, OECD Publishing, www.oecd.org/daf/pensions/outlook.

Thank you and further information

The OECD SOCX database is accessible via

www.oecd.org/els/social/expenditure

November 2012: Social spending during the crisis: Social

expenditure (SOCX) data update 2012. OECD Social, Employment and Migration Working Papers, No. 124: Is the European Welfare State Really More Expensive? Indicators on Social Spending, 1980-2012; and a Manual to the OECD Social Expenditure Database (SOCX). http://www.oecd.org/els/listofsocialemploymentandmigrationwor kingpapers.htm

To come the OECD SOCR Recipiency database