The use of reference budgets for policy purposes Tess Penne Herman Deleeck Centre for Social Policy – University of Antwerp EMIN – Peer Review 18-19 September 2018 Refresh shortly: Reference budgets are instrument to build consensus in society about what is an adequate income minimum resources needed for adequate social participation Show private (out-of-pocket) minimum costs of adequate baskets of goods and services (disposable income) Mixed-methods approach: drawing on all relevant information sources Own price survey Normative and illustrative (specific household types)

Use of reference budgets? Need for a concrete benchmark that can be used at micro and macro level by NGOs, judges, social policy makers, organisations To evaluate living situations in relation to human dignity To identify priorities, how to move forward in battle against poverty To assess and reduce the costs that people face to access essential goods and services To assess and improve the adequacy of incomes

Use at micro level Tool for public welfare offices to evaluate situation with respect to human dignity Securing adequate income support Budget and debt counselling Strengthening consumer competences Financial support for students Affordability of (public) goods and services such as housing, water,… => See presentation Bérénice Storms for illustration use at mirco level in Flanders Refer to presentation Bérénice

Use at macro level Facilitate mutual learning and identification of best practices in the fight against poverty Contextualise other social indicators, and policies Measure poverty Assess the cost and affordability of (public) goods and services: illustration for children Monitoring and assessing the adequacy of minimum income support and other benefits

Macro use of reference budgets: outline Contextualise at-risk-of-poverty indicator Identifying the poor The cost of a child The adequacy of minimum income support =>Making use of cross-nationally comparable RBs from: ImPRovE project (BE-ES-EL-IT-FI-HU + LU) EU Pilot Project – 26 EU MS ImPRovE project (2012-2016) First attempt of cross-nationally comparable RBs (BE- ES-EL-IT-FI-HU + LU) EU Pilot Project (2014-2015) common method for comparable RBs in 26 EU MS Validation of theoretical framework in focus groups Food basket 26 countries, health care, personal care & housing for 8 countries

1. Contextualising the AROP60 /Month In Athens, Barcelona, Budapest and Milan the budgets suggest that, at the level of the poverty threshold, households renting a private apartment cannot afford to participate adequately in society. In Antwerp and Helsinki on the other hand, single persons living with an income at the at-risk-of poverty threshold, who live in an urban region, and have no health problems, are financially able to participate adequately in society. Clearly, having an income at the level of the at-risk-of-poverty threshold means different things in different countries in terms of adequacy. Housing costs play major role, especially in the case of private tenants! Goedemé, T., Penne, T., et al. (2017), What does it mean to live on the poverty threshold? Lessons from reference budget research, CSB Working Paper series.

1. Contextualising the AROP60 Goedemé, T., Penne, T. et al. (2017), What does it mean to live on the poverty threshold? Lessons from reference budget research, CSB Working Paper series.

2. Identifying the poor Here we RBs can be transformed into poverty lines through the following steps: calculating the cost of additional household members and derive an equivalence scale at the level of the RBs extrapolating the RBs to the entire population Include actual housing costs (top-coded) due to large variations (ideally also for other costs such as health care, education, child care and mobility) application of the RBs to a representative survey (in this case, EU-SILC) to estimate the number of persons with a disposable income below the threshold. We show the number of people with a net disposable income below the threshold for Belgium, Finland and Spain; and how this compares to the usual poverty estimates on the basis of the at-risk-of-poverty indicator. The figure is diversified according to different age groups (<18y, 18-65y, >65y). Estimations are based on representative income data available in the EU-SILC for the year 2012, restricting the sample to densely populated areas (given that the reference budgets were developed for large cities). Poverty thresholds based on reference budgets reflect policy efforts on affordability essential goods and services (housing policy!) RBs and AROP: Differing variation in distribution of poverty among social groups overall poverty rates decrease in Spain compared to the RB indicator, while they increase slightly or remain constant in Belgium and Finland. Looking at differences across age groups, we can generally say that young people are relatively worse off when poverty is measured with the reference budget indicator compared to the at-risk-of-poverty rate. In Belgium and Finland at-risk-of-poverty rates are significantly higher for elderly, resulting in an (almost) reverse picture compared to the RB indicator. This is most likely primarily the result of taking housing costs into account: many elderly have a relatively low income (at least in Belgium and Finland), but at the same time they have a higher likelihood of low housing costs due to full ownership of the house. As a result, they do rather poorly when housing costs are ignored, and relatively well if housing costs are taken into account for everyone. Penne, T., Cussó Parcerisas, I., Mäkinen, L., Storms, B. & Goedemé, T. (2016). Can reference budgets be used as a poverty line? ImPRovE Working Papers N°16/05.

3. The cost of a child /Month The total cost of a child in primary and in secondary school. The cost of a child is derived here by subtracting the reference budget of a single person from the budget of a single parent with one child Unfortunately we could not derive the cost of a child in secondary school for Finland because they started from slightly different family types You can see that the cost of a child increases with the age in all countries. BUT, we did not include childcare costs. Hence, the real costs of younger children will be underestimated when families make use of child care services Finally, there are important differences across countries. It ranges from about 250 EUR/month in Budapest to about 500 EUR/month in Helsinki for a child in primary school and from about 300 EUR/month to about 550 EUR/month for a child in secondary school. The cross-national differences can be explained by price variations but also by differences in the geographical (e.g. clothing adapted to climate), socio-cultural (e.g. social habits defined by focus groups such as babysitter) and institutional context, more specifically the publicly provided or subsidised goods and services have an important effect on the affordability of health care, education, and public transport which is reflected in the total cost of child in the different countries You can see the share of the different baskets in the total cost. I do not have time to go into detail, but you can see how the out-of-pocket cost for (public) education, health care and public transport takes only a small share of the total cost of a child, as compared to the cost of other essentials for teenagers (e.g. food, clothing, telecommunication services) reflecting the large public investments in these services Penne, et al. (2018) To what extent do welfare states compensate for the cost of children? A hypothetical household approach to policy evaluations. CSB Working Paper series.

3. The cost of a child we simulate the cash advantages received by a family with children compared to a similar family without children for different % of a full time average wage (OECD) using the Hypothetical Household Tool (part of microsimulation model Euromod) simulates net incomes for specific hh types: including soc assistance top ups, family allowances and tax credits These child cash benefits are expressed as a percentage of the cost of a child (derived from RBs – see previous graph) From the graph, it can be observed that in nearly all cities the child benefit packages are far from sufficient to compensate for the essential needs of children. The figure shows that, generally, the child benefit packages are compensating between 0 and 60% of the minimum cost of a child However, there are large differences across countries.: For low wage workers, the child cost compensation is the lowest in Barcelona and Athens (between 5 and 13%) and the highest in Milan and Antwerp (between 33 and 58 %). In general, the child cost compensation decreases with income (except for Barcelona) and with the age of the child. The latter can be explained by the higher costs as children grow older, while the benefits for children generally do not vary between the age of 6 and 18 (except for Antwerp). Although not included in the figure, we have calculated the child cost compensation also for different household types and tenure states. For a couple single earner family, costs are generally compensated to a lesser extent since they receive less child-specific advantages (cf. Figure 6). For outright owners, in most countries, the child cost compensation increases slightly, which is mainly due to the lower housing costs. in most countries, the welfare state is working harder in order to compensate the cost of children at the lower end of the income distribution CONCLUSION the cash advantages for families with children do not compensate for the welfare loss of having a child (horizontal equity objective). Also for low wage workers, the cash benefit packages often even too low to compensate even for the cost of shelter and food. Of course, child benefits are not the only policies supporting the income of families working on a low wage. Penne, et al. (2018) To what extent do welfare states compensate for the cost of children? A hypothetical household approach to policy evaluations. CSB Working Paper series.

4. The adequacy of minimum income schemes

4. The adequacy of minimum income schemes Here we expressed the cost of a healthy diet (the food baskets in the EU pilot projects) as percentage of the net income from social assistance (CSB MIPI DATA) In Greece there are no social assistance benefits and in some countries such as Italy it is important to bear in mind that they are regionally organised which means income inadequacy varies widely across regions. We can see large differences across countries but even in the wealthier member states the cost of the food basket reaches 20 to even 40% of the minimum income. In HU, LT, LV, PL, PT and RO the percentage of the food basket reaches over 100% of the minimum income.  In Romania it reaches extreme height; for families with children the cost of a healthy diet is 5 times higher than their income from social assistance CONCLUSION: In all countries, people at the bottom of the income distribution experience constraints to eat healthily: Minimum income protection seems to be highly inadequate in many EU countries Penne, et al. (forthcoming) Can social assistance recipients afford a healthy diet?

Conclusions

Conclusions Reference budgets offer a clear benchmark of what is needed to live a life in dignity in different EU countries They are a useful policy tool for: Contextualising other indicators, notably the at-risk-of-poverty threshold Identify the poor and vulnerable groups in society Bringing in the importance of affordable public goods and services (housing, energy, water, …) Monitoring the adequacy of income (support) Facilitate cross-national learning Identify priorities in social policy Facilitate cross-national learning with regard to how other (similar) countries reduce the cost / accessibility of essential goods and services Understand that ensuring adequate incomes is NOT only about increasing incomes, cf. school lunches, social housing, health care … but current budgets may prove overly ambitious for some Member States => setting intermediate targets. show how income adequacy can be achieved either by increasing incomes, or by reducing the cost of essential goods and services (e.g. housing) By comparing various household types, it is possible to identify groups that could be targeted.

Limitations Reference budgets are illustrative and never represent exact income threshold – importance of transparency They are not representative since they are developed for a limited number of specific, well-defined family types Very detailed work with challenges of robustness and a lot of areas for improvement: e.g. pricing, consultation of citizens, data collection,… It is not a straightforward benchmark for minimum income protection: may show intermediate targets for reaching adequacy Or how MS can reduce costs

Thank you for your attention!