Logic, relevance and reliability
6. THE UNIVERSAL MODEL: EIGHT INTERRELATED MODELS Balancing relevance and measurability
6.6 Modules on social policy, human capital and for policy analysis .1 Introduction .1 Introduction
6.6.2 A module on social policy and expenditure
The standard national accounts contain a lot of information on revenue and expenditure for social purposes, e.g. social contributions, social benefits, government expenditure by function and final consumption expenditure of households by function. This information can be combined and rearranged to derive a module on social policy and expenditure. This is demonstrated by table 6.6.2.
Social risks or needs
The columns show nine different types of social risks or needs:
1. Sickness;
2. Disability;
3. Old age;
4. Survivors;
5. Children/family;
6. Promotion of employment/Unemployment;
7. Housing;
8. Education;
9. Social exclusion or general neediness.
According to the standard national accounts, all these risks or needs can give rise to social benefits (see e.g. ESA95, paragraph 4.84). Expenditure serving these risks or needs can therefore be labelled as social expenditure.
Breakdown of the social expenditure
The rows show the various types of expenditure for social purposes. These expenditure are split into two groups:
- Expenditure on social policy; these are all expenditure by the general government. However, it excludes their expenditure as an employer.
- Other social expenditure.
Expenditure on social policy
The expenditure on social policy consist of:
- Social security benefits in cash and in kind;
- Social assistance benefits in cash and in kind;
- Transfers to other producers, e.g. subsidies for employing long-term unemployed or subsidies to housing corporations in order to reduce their rents.
- Operating costs of the various social policy schemes, e.g. for distributing social benefits, for collecting social contributions or for running various employment projects (workfare).
All these expenditure are to be allocated to the nine different types of social policy. This requires that for each type of expenditure the composition by major scheme is known. In the Dutch national accounts, such a breakdown, e.g. of social security benefits in cash by scheme, is regularly published. The name of the scheme generally already indicates the social function served. However, some schemes pertain to more than one social function. This applies to e.g. the exceptional medical health act (AWBZ) in the Netherlands. Some of the AWBZ-benefits pertain to sickness (e.g. special health care), some to old age (e.g. the financing of homes for the elderly) and some to children/family (e.g. special care for pregnant women and children). Allocation requires then some more information.
By allocating the government expenditure for all its major social policy schemes, the size and composition of government social expenditure can be shown for each type of social policy and for each type of expenditure.
The table shows that over 50% of the government expenditure on social policy are social security benefits (119 billion euro out of 202 billion euro). These social security benefits focus on
Table 6.9.2 The composition and size of social expenditure in Polderland 1998, bln euro
1 2 3 4 5 6 7 8 9 10
Children/ Employment/ Social
Sickness Disability Old age Survivors Family Unemployment Housing Education exclusion Total Expenditure on social policy
1 Social security benefits 53 16 35 4 2 8 0 0 0 118
2 in cash 11 16 31 4 0 8 0 0 0 70
3 in kind 42 0 4 0 2 0 0 0 0 48
4 Social assistance benefits 1 4 0 0 7 0 3 29 21 65
5 in cash (gross) 0 3 0 0 7 0 0 2 10 22
6 in kind via market producers 0 1 0 0 0 0 3 1 3 8
7 in kind as other non-market output 1 0 0 0 0 0 0 26 8 35
8 Transfers to other producers 0 0 0 0 0 4 3 0 0 7
9 Operating costs of social policy schemes 2 1 1 0 0 5 1 2 1 13
10 Total expenditure on social policy 56 21 36 4 9 17 7 31 22 203
11 P.M. Social security contributions 118
12 P.M. Total government expenditure 369
Other social expenditure
13 Pension benefits (funded) 0 0 28 7 0 0 0 0 0 35
14 Other private social insurance benefits 3 0 0 0 0 0 0 0 0 3
15 Operating costs of private social insurance schemes 0 0 2 0 0 0 0 0 0 2
16 Unfunded employee social benefits 17 0 1 0 0 2 0 0 0 20
17 Social assistance benefits in kind by NPISH 0 0 0 0 0 0 0 0 1 1
18 Social final consumption expenditure by households 15 0 0 0 0 0 80 2 5 102
19 Total other social expenditure 35 0 31 7 0 2 80 2 6 163
20 Total social expenditure 91 21 67 11 9 19 87 33 28 366
21 P.M. Contributions to pension schemes 72
22 actual 23
23 supplements 49
24 P.M. Final consumption expenditure by households 384
25 P.M. National income 669
three social functions: sickness, disability and old age. The social security benefits in kind mainly consist of health care (included in sickness) and care by homes for the elderly (included in old age).
Social security benefits are no tools for housing and education policy. Expenditure for housing policy mainly consist of individual rent allowances (a social assistance benefit in kind) and transfers to housing corporations (transfers to other producers). Education provided as other non-market output is the major type of expenditure for education policy. Other government expenditure on education include e.g. scholarships (social assistance benefit in cash), free public transport for students and the costs for running the Ministry of Education.
The social function employment/unemployment contains e.g. unemployment benefits (social security benefits in cash), subsidies for employing long term-unemployed (transfers to other producers), the cost for running social workplaces (e.g. employment projects for the handicapped) and the overhead costs for developing and managing the various employment/unemployment schemes.
Government expenditure on social exclusion include e.g. general subsistence benefits in cash, legal assistance to the poor, general care by community centres and services by government institutions fighting alcoholism and drugs addiction.
Two pro memory items have been added to the government expenditure on social policy: social security contributions and total government expenditure. This clarifies the burden of social policy for government finance. The table shows that the government expenditure on social policy are about 55%
of total government expenditure and that the social security contributions are sufficient for financing 30% of total government expenditure.
Other social expenditure
The second group of social expenditure consists of six types of expenditure:
- Pension benefits (funded);
- Other private social insurance benefits;
- Operating costs of private social insurance schemes;
- Unfunded employee social benefits;
- Social assistance benefits in kind by Non-Profit Institutions serving Households (NPISH);
- Social final consumption expenditure by households, i.e. expenditure for the COICOP-functions health, housing, education and social protection.
The table shows that these other social expenditure mainly consists of pension benefits, unfunded employee social benefits and final consumption expenditure by households.
The other social expenditure on sickness consists for nearly 50% of unfunded employee social benefits (e.g. paid sick leave or reimbursement of medical expenses for civil servants) and for nearly 50 % of household expenditure, e.g. on health care.
For the functions disability and children/family there are no other social expenditure. This does not indicate that the government bears all these risks and needs, as these risks may also be covered by private insurance (e.g. against the loss of income due to disability) or by saving. Furthermore, some of the needs may be met by services outside the national accounts production boundary, e.g. the care-taking of children by their parents or family. Similar remarks apply also to other functions: the other social expenditure underscores the efforts by individual households by ignoring private insurance, saving and services outsides the standard national accounts production boundary.
Three pro memory items have been added to the other and total social expenditure:
contributions to pension schemes, final consumption expenditure by households and national income.
The contributions to pension schemes show how much of the current pension benefits are financed by actual contributions and by property income on contributions paid in previous periods. The difference between the current pension benefits and the pension contributions are used to finance future pension benefits. According to the table actual contributions are only one third of total pension contributions and only half of these contributions are used for paying out current pension benefits.
The final consumption expenditure by households can be used to show the relative importance of the social part of final consumption expenditure by households (about 40% in the table).
National income can be used to derive simple indicators of the burden of social expenditure on the national economy, e.g. social expenditure is 55% of National income.
Value added of the module
The major merits of this module are:
- It provides a simple overview on the social policy and expenditure in a country. Together with quantitative and qualitative information on the major underlying social policy schemes, it even provides a fairly complete overview.
- The types of social policy distinguished are meaningful as they reflect different social risks and needs.
- The various types of expenditure are meaningful as they reflect different economic tools for meeting social needs.
- The module is derived from the standard national accounts. As a consequence, it has a straightforward link towards the major statistics on the national economy and government finance.
The statistics from the module can therefore be analysed in the context of the national economy and government finance. Furthermore, national accounts statistics can serve as a data base for compiling the module. Finally, the definitions employed are readily available, as they are derived from the standard national accounts definitions.
- The module can also be supplemented and refined as a tool of analysis, e.g. by splitting the development of values over time in changes in prices and volumes or by correction social assistance benefits for taxes and social security contributions to be paid.
A somewhat similar module can also serve as a link between European/OECD social protection statistics (ESSPROS; Eurostat, 1996; OECD Social Expenditure Data Base; SOCX) and national accounts statistics (see Bos, 2000). Linking national accounts statistics and social protection statistics provides new opportunities for both types of statistics. From the point of view of social protection statistics, it implies that social protection statistics can be related to the official statistics on the national economy. National accounts statistics broken down by social protection scheme can also serve as a check on the completeness and reliability of social protection statistics. Furthermore, the compilation processes of both statistics can be linked. This can save compilation costs, increase reliability and timeliness. European social protection statistics could then become as timely as (future) national accounts statistics, i.e. the delay in publication could change from about 2 years to 8 months, 3 months or perhaps even less.
Similar opportunities apply to the national accounts. From the point of view of the national accounts, social protection statistics can be regarded as a module supplementing the standard national accounts. This module is relatively easy to derive from the standard tables and is highly relevant for economic and social policy. Furthermore, such a module can serve as a check on the reliability and completeness of the standard national accounts figures.