1. Innovative Financing Mechanisms to improve fiscal space for social spending IMPLEMENTING SOCIAL PROTECTION PROGRAMMES IN CENTRAL ASIA 30. November – 1. December 2009, Bishkek, Kyrgyzstan Pascal Annycke, International Consultant

2. Social Security as a Human Right Article 22 of the Universal Declaration of Human Rights (1948) states: “Everyone, as a member of society, has the right to social security” Everybody, poor and rich, needs social security (uncertainty, life- cycle…)

3. Social Security: a Need for All Everybody needs social security, either poor or rich Everybody is vulnerable But some are more vulnerable than others (precarious work, informal economy…).

4. Why promoting social security? Reduces Poverty and income inequalities Generates domestic demand and economic growth (economic stabilizer) Enhances human capital and productive employment Promotes peace, social cohesion and economic and social changes

5. Social Security: horizontal and vertical dimensions Source: ILO

6. Map of Social Security Coverage Gap

7. Unemployment insurance: coverage gap in the region

8. Social Security Coverage Gap « between 70 and 80% of the global population live in a state of more or less severe ‘social insecurity’, i.e. have no access to formal social security » Cichon, Hagemejer (ILO, 2007) In other words: traditional social security schemes (social insurance) cover max. 20% and fail to extend coverage.

9. Basic protection in time of crisis UN response to global financial crisis: Social Protection Floor (UN System Joint Initiatives), comprising 2 main elements - Access to Essential Public Services (health, education, water, sanitation) - Social transfers (in cash or in-kind, for food and income security, plus access to services, health…)

10. Limits of the traditional social security Contributions evasion Unbalanced cost between capital and labour Informal economy Tax only supported by the labour might be counter-productive and reduce competitiveness

11. What is Fiscal Space ? “…fiscal space can be defined as the availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government’s financial position”. “…the idea is that in creating fiscal space, additional resources can be made available for some form of meritorious government spending or tax reduction”. Source : Peter Heller (2005)

12. Main ways to create fiscal space Increase government revenue (increase tax, economic growth) Reallocation of expenditures Improve efficiency of public expenditures Renegociate the interest rate of debts Increase grants from international aid Increase borrowing Money creation

13. Fiscal space for social security Earmarked tax: Revenues from minerals (oil, gaz, mining...) Privatization of public goods and companies VAT… Formalizing the informal employment More neutral effect on production factors

14. Petrol for Basic income in Alaska Alaska Permanent Fund (1976) Funded by a share of oil revenues to benefit to present and future generations of Alaskans. Each year, the residents of Alaska receive a cash transfer. Flat rate amount of 1,305 $ in 2009. (revised every year).

15. Petrol to support of pension schemes Norway- Norwegian Government Petroleum Fund (1990), revenues from oil and gaz Transformed in Government Pension Fund (2006) to support the pension system.

16. Financial income tax to support pension schemes France – Tax on estate and financial incomes to support the national pension schemes: Generalized Social Contributions’ (CSG): tax on all incomes (from labour and capital) to finance a minimum non contributory pension Pension Reserve Funds (2001) (« Fonds de Réserve pour les Retraites ») financed by: Tax on estate and financial incomes (2%). Revenues from privatization

17. VAT to support social security Ghana has increased VAT by 2% on some products to finance health care Belgium and other European countries: increased taxes on alcohol and tobacco products to finance social security (social cost of alcohol and tobacco abuse) Brazil created a special fund to finance pension for farmers (FUNRURAL), financed by a tax (2.2%) on the first purchaser of rural goods.

18. Combination of sources to extend health care Colombia : non contributory health care financed: Health Lottery + games of chance Tax on alcohol and tobacco Coffee corporation Health contributory schemes (1.5% of due contrib.) General government tax

19. Sovereign Wealth Funds in the region Azerbaijan State Oil Fund (1999) and Kazakhstan National Fund (2000) : Any debates to use the revenues to finance basic social expenditures ?

20. Conclusions Social security is a source of growth in short and long terms Western Europe faces better the crisis than USA thanks to more developed Social Security Balance social security financing between tax and social contributions