Financing of social protection in Europe: Overview of the main issues Financing of social protection in Europe: Overview of the main issues Mechelen, 13 February 2006 Monika Queisser, Principal administrator OECD, Social Policy Division ( courriel:

2 Trends in OECD countries Non-wage labour costs becoming an issue Atypical careers are be becoming typical Scaling down of benefits requires more redistribution but Tighter contribution-benefit links to increase work incentives

3 Labour cost issue Tax burden affects employment Effects could be either on supply or demand side On demand side: taxes paid out of labour, capital or transfers

4 Reduction of burden on labour… by reducing overall tax burden by shifting the burden on capital by shifting the burden on transfers but effects will depend on adjustment of labour markets

5 To what extent do countries rely on social security contributions ?

6 Tax wedge: level of social security contributions and income taxes

7 Level of social security contributions, % GDP,

8 Pensions as cost factor Germany: use of eco-tax to reduce contribution rate France: use of CSG to limit increases Solidarity contributions in LUX, BEL Overall: state transfers for pensions frequent

9 Adressing atypical careers Tight contribution-benefit links require full careers Interrupted careers partially protected through credits Old-age safety nets/guarantee pensions will become more important Potential conflict with Bismarckian insurance principles (e.g. Germany: constitutional issue)

10 Redistribution in pension systems Two distinct regional trends in pension reform More redistribution in Western European countries Less redistribution and very close contribution-benefit links in Italy and CEE countries Preliminary OECD calculations show effects to be substantial