Social Policy : Trends in spending, recipiency and policy focus Seminar presentation: Korea Institute for Health and Social Affairs 11 October, 2007, Seoul, Korea Willem Adema Head, Asian Social and Health Outreach, OECD (www.oecd.org/els/social/expenditure)

Presentation outline What is social spending? What is it spent on? How do countries compare? Who receives social support? The impact of the tax system. Future policy challenges and options. 2

What is social spending? The OECD Social Expenditure database defines social expenditure as: Provision of support (cash, in-kind, fiscal) by public and private institutions to households during circumstances which adversely affect their welfare. Social spending involves compulsion and/or interpersonal re-distribution: payments for services bought at market prices at individual risk-profiles are not social. Does not include transfers between individuals and households 3

What is social spending (continued)? Social policy areas: Old age Survivors Incapacity related Health, Family Unemployment, Active Labour Market Programmes Housing Other contingencies (e.g. low-income) Recent SOCX-work focused on civil servant pensions, long-term care and family support. 4

Most spending is on pensions and health care Public social expenditure, per cent of GDP, 2003

Public spending on family benefits, per cent of GDP, 2003 Public family benefits include cash transfers, (childcare) services and fiscal support Public spending on family benefits, per cent of GDP, 2003 Public support included here only concerns items that are exclusively for families (e.g. child payments and allowances, parental leave benefits and childcare support). Spending recorded in other social policy areas as health and housing support also assist families, but not exclusively, and is not included here.

Non-health related social spending contributes to reducing poverty across the OECD Poverty rate and non-health related public social expenditure, per cent of GDP, 2000 Public support included here only concerns items that are exclusively for families (e.g. child payments and allowances, parental leave benefits and childcare support). Spending recorded in other social policy areas as health and housing support also assist families, but not exclusively, and is not included here.

What is public and private social spending? In line with the System of National accounts, social spending by General Government (different levels of Government and social insurance institutes) is regarded as public social expenditure. Social spending by employers, individuals, and NGOs is private social expenditure: when legally stipulated, it is ‘mandatory’ Otherwise, it is voluntary private social spending’. 8

Examples of social benefits Public Social Expenditure: Social insurance support (pensions, unemployment, medical benefits) Social assistance support, means-tested livelihood protection Benefits for civil servants (except when through autonomous funds) Mandatory Private Social Expenditure: Employer-provided sick-pay, severance payments Voluntary Private Social Expenditure: Tax advantaged employer-based health plans, occupational pensions, NGO-provided social services. 9

Public, mandatory private and voluntary private, 2003 Most social spending is publicly financed, especially in Germany, Japan and Sweden… Public, mandatory private and voluntary private, 2003

Public, mandatory private and voluntary private, 2003 …but private spending plays an important role in Korea, the UK and the USA. Public, mandatory private and voluntary private, 2003 Public Voluntary private Mandatory private

Publicly mandated social expenditure 1980 - 2003 Publicly mandated social spending is increasing in most OECD countries… Publicly mandated social expenditure 1980 - 2003

…but not in the Netherlands and Sweden. Publicly mandated social expenditure 1980 - 2003

Recipiency has increased since 1980 but cyclical patterns are clearly visible… Total recipients of social benefits as a percentage of the population aged 15-64, 1980 - 2004

…while in Korea, the increase of the social assistance caseload drives the upward trend in benefit receipt Total recipients of social benefits as a percentage of the population aged 15-64, 1980 - 2004

When considered over the life course, Sweden frontloads investment in families…

…while the Korean spending profile reflects education spending patterns.

Taxation of benefit consumption varies across countries Net social spending: Governments claw back money through taxation of benefits and also use tax systems to provide and stimulate social support Taxation of cash payments differs across and within countries and across types of transfers Taxation of benefit consumption varies across countries Tax breaks that mirror cash payments : some programmes include both elements Tax breaks that aim to generate more private social provision. 18

Income tax and soc. sec. cont Income tax and soc. sec. cont. paid over benefit income is below OECD average in non-European OECD countries Direct tax and social security contributions paid over benefit income, per cent of GDP, 2003 19

Indirect taxation of consumption out of benefit income is higher than direct tax levied (previous chart) and is highest in Europe. Indirect tax paid over consumption out of benefit income, per cent of GDP, 2003 20

In Germany and the US tax systems play an important role in delivering social support 21

Net total social spending levels are similar in across OECD countries… 22

The story so far Public social spending and benefit recipiency are on the rise in most countries. Information on the effect of tax systems is needed to improve quality of international comparisons, and are likely to revel reduced spending growth for most European OECD countries. Next release of the Social expenditure database in 2008; including net spending and data on recipiency. Information on Asia countries that do not belong to the RCHSP may well be included 23

Public spending on pensions, per cent of GDP, 1990 - 2003 Public pension spending increased by 1 per cent of GDP from 1990 to 2003 and will increase further… Public spending on pensions, per cent of GDP, 1990 - 2003 24

…and spending on health and Long-term care has increase even faster over the same period Public spending on health and services for the elderly and disabled, per cent of GDP, 1990 - 2003

Ageing will exert upward pressure on social spending across the OECD, especially in Korea Population aged 65 and over, relative to the population aged 20-64, 2000 and 2050

Korea needs to better use its ‘female capital’ to avoid a shrinking the labour force Total labour force from 1980 to 2000, and projections from 2005 to 2030, in thousands ‘Constant rates’: assumes constant labour force participation rates for men and women from 2000 to 2030; ’Gender equity in participation rates’: assumes that female participation rates reach current male participation rates in each country by 2030.

…which could also contribute to higher fertility rates. 1980 Female employment rates, and total fertility rates 2005 NB Different scales on the horizontal axis of the panels; female employment has increased everywhere

More information OECD (2007), Social Expenditure database, 1980-2003, www.oecd.org/els/social /pensions, in particular, see the interpretative guide. OECD (2007), Facing the Future, Korea’s Health, Family and Pension Policy Challenges. OECD (2007), Pensions at a Glance. www.oecd.org/els/social/pensions