1. Finnish efforts to simplify benefit systems and reduce non-take-up
Peer review on coverage and take-up
Helsinki, 13 and 14 March 2018 – KELA offices
Olli Kangas

2. CONTENT OF THE PRESENTATION
Non-take up and adequacy as a problem
Maybe adequacy is a bigger problem than non-take up
(residence-based social protection)
Cursory inspection of some schemes
Simplifying social policy
Income transfers
Basic income
Other solutions
Social and health care services
Conclusions

3. Adequacy and non-take up as problems

4. Problems in adequacy (possibly) (Honkanen 2017; Kangas & Niemelä 2017)
Compensation levels (%) of some transfer schemes in relation to average wage wage)

5. Basic pensions are universal but not perhaps fully adequate (= problems in coverage of employment-related pensions)
Poverty rate according to 40% (vertical) & 60% (horizontal) poverty line

6. Unemployment benefits
Impacts of the activation model on take-up rates
Social assistance will partially compensate cuts
Creates more severe disincentive problems
A dual system:
Flat rate basic benefits: basic daily allowance and labour market subsidy paid by Kela
Income-related benefits paid by unemployment funds
Membership is voluntary
In principle all are covered at least for basic benefits
Not all for income-related benefits

7. Number of households getting only housing allowance or social assistance (cs 40,000 households in 2017) (indicating non-take up in ‘primary’ transfers) (Korpela 2017)
Total number
Housing allowance
Social assistance

8. Consequences of the centralization of social assistance (SA) to Kela in 2017
Negative
Positive
Increased costs: + €95 mill
Too long waiting periods
Legalism, strict formality
Problems in mediating information from Kela (paying ‘basic’ SA) to municipalities paying out additional and preventive SA
Breaks between transfers and social work
Non-take up in social / employment services might have risen
Easier to apply
No stigma
Non-take up rates decreased
In 2016 ca 237,000 and in ca 277,000 households got ’basic SA’ (+45,000 hh)
Elimination of different municipal practices
equality
Easier to get reliable & comparable statistics on poverty and social exclusion

9. Non-take up in social assistance (SA)among youngsters and the NEETs
In municipal system non- take up of SA was 25%-50%
In 2017 SA was centralized to Kela
2017 recipiency rate was app. 20% vs 15% in 2016

10. Recipiency of social assistance according to age group in Finland 2017 (Raittila 2018)
%of the age group
Absolute numbers

11. Non-take up as a problem long-term care services for the elderly (Sotkanet 2018)
% of those getting home-help among 85+ yrs according to major regions

12. Too complicated services system causes problems and non-take up (e
Too complicated services system causes problems and non-take up (e.g care-chains of a person suffering from dementia (Kalliomaa-Puha & Kangas 2018)
There are many providers (a multi- producer system), financing comes from different sources (multi- channel financing)
The system is not always transparent enough
difficult to know where and how to apply help
Does SOTE improve the situation???

13. Problems in adequacy and take-ups in a number of core programs in Finland
Social policy program
Problems in
Adequacy
Take-up
Transfers / Basic benefits
Pensions
yes no
Unemployment benefits
no (partial)
Child allowance No
Social assistance
no (any more)
Sickness benefits
Partial
Disability pensions
Earnings-related benefits
Sickness insurance
Daddy periods
no 
Yes
Social services
Child care
yes/no (?)
Health care
yes (access)
Long-term care
Problems perhaps are more cute in the adequacy of benefits than non-take up rates
Take-up problems are often linked to ‘boarder-line’ cases
E.g. too sick to work but not sick enough to qualify to disability pensions
In health & elderly care access is a problem

14. Simplifying the social security system: services

15. Multi-channel financing and multi-producer system in social care – will SOTE improve the situation?
Mixture of pure in kind benefits and cash for care
Most of services are provided by municipalities (ca 310) but also by the 3rd sector and private for-profit firms (that are rapidly expanding their shares in social and health care)
Financing comes from municipalities (municipal tax), state (via Kela), insurance companies and from the users (user fees)
The whole social and health care service system will be totally changed by SOTE, the social and health care reform
Instead of municipalities 18 counties will organize care.
Freedom of choice of the producer, vouchers and individual care budgets
more room for private for-profit providers to operate
Simplification of the system
Nobody knows

16. Simplifying the social security system: transfers

17. Non transparent ‘jungle’ of benefits
The Finnish income transfer system is a result of process where all substantial reforms demand broad consensus between political parties and social partners
No master plan but piecemeal development
Often layering of benefits
As a result, there is a ‘jungle’ of benefits that is difficult for a client to understand
Different benefits have different impact on pension accumulation
Different benefits have different household concepts and consequently, different income concept
Some benefits are taxable some are not
There are different ‘bonuses’ for dependent children
Income-testing varies from scheme to scheme

18. How income transfers accrue pension rights
How income transfers accrue pension rights? Income for pension calculation
The annual pension accrual rate is 1.5% of income
In the case of social benefits the pension-giving income is as follows
Parental leave:
117% of income that forms basis for S/P benefits
Unemployment
75% of income that forms basis for UE benefits
Sickness / care of sick child
65% of income
Care leave
A flat rate basis of € a month
Basic benefits do not accrue pensions

19. As a rule, benefits as well as taxation are individual
Different family / household concepts cause problems and tax-rates depend on the benefit
As a rule, benefits as well as taxation are individual
There are exceptions:
Housing allowance
Social assistance
National pension (amount smaller if a claimant has a spouse) vs. guarantee pension (individual)
What is a household vs. family?
Whose income is taken into consideration?
Co-habitation, communes?
Taxation varies
E.g. pension of €10,000 a year is tax-free but unempl. benefit of €10,000 is subject to tax of 28%

20. Family members count differently in different schemes (different equivalent scales) Tervola (2017)
Legends
“1. aikuinen” = 1 adult
“Muu aikuinen” = other adult
“Aikuinen lapsi” = adult child
“14-17v” = child yrs
“10-13v” = child yrs
“0-9v” = child 0-9 yrs
“Viitebudjetti” = reference budget calculations
“Köyhyysmittarit -2001” poverty measures ->2001
“Köyhyysmittari 2002-” poverty measures 2002->
“Toimeentulotuki” = basic social assistance
“Yleinen asumistuki” = general housing allowance

21. Different bonuses for dependent children (different economic of scale in different schemes) Tervola (2017)
Legends:
“1. lapsi” = 1 child etc
“Köyhysmittarit / viitebudjetti” = poverty measures / reference budged
“Lapsilisä” = child allowance
“Toimeentulotuki” = basic social assistance
“Työttömyysturvan lapsikorotus” = child bonuses in unemployment benefits
“Eläkkeen lapsikorotus” = child bonuses in pension

22. To make it a bit more complicated…
Several schemes for the same purpose
Different rules for income-testing
There were 4 housing allowance schemes:
General one, pensioners’, students’ and conscripts’
1. august 2017 students schemes was merged together with the general scheme
Plans to merge pensioners’ allowance with the general one ( ) failed
Different schemes for guaranteeing basic security
Basic unemployment allowance vs. labour market subsidy, social assistance, basic sickness, invalidity, rehabilitation etc. benefits
In housing allowance and unemployment benefits in work benefit of €300 a month
E.g. if single then labour market subsidy is decreased by c75 by each € from employment and c50 for couples
In social assistance €1 per €1
Housing allowance has its own rules

23. Simplifying the system

24. Some back ground data form the OECD economic report (2018)

25. Some back ground data (OECD 2018)

26. Political background Changes in the labor markets
Does our social security system properly correspond to changes in labor markets?
Or are there any changes at all?
‘No’, say the opponents of BI
‘Substantial’, say the proponents of BI
Elimination of incentive traps
Too many cases where work does not pay (enough)
Elimination of bureaucratic traps
Clients’ fears on bureaucratic machinery
To create a more transparent system

27. Different possibilities to simplify the overly complicated social security system
Basic income
Nation-wide randomized experiment running
Negative income tax
Possible experiments 2020
Participation income (a’la Anthony Atkinson)
Municipal experiments going on
Universal credit
Political support growing
Smaller steps to homogenize benefits levels and regulations
Income guarantee

28. EU and possibilities to simplify the national welfare state (Kalliomaa-Puha, Tuovinen & Kangas (2016): “The basic income experiment in Finland”, JSSL Vol 23:2, pp )
When trying to simplify the national legislation the EU legislation plays a role depending on the scheme in question
Insurance-based (social security contributions) benefits are portable benefits
Some benefits were planned to prevent portability
Merging them together may cross the ‘red line’
Taxes
Contributions

29. To abolish incentive traps
There is a number of income-tested ‘basic’ benefits paid on top of each other create effective marginal tax rates of % or so
labor market subsidy + housing allowance + social assistance and income-related day care fees
Work does not pay (enough)
How the benefit receivers value their free-time?
How to make work pay?
Basic income as such is not enough and the implementation of BI does not solve the incentive problem unless the BI is very high
e.g. €1,000-1,500 a month
However, levels of taxes collected on income coming on top of BI:
Tax = 70% to 80%

30. The Finnish BI experiment

31. A single person is an ‘easy’ case
Composition of income and effective marginal tax rate of unemployed person living alone. The current tax-benefit system and partial BI models €550 with simple flat-rate tax (basic unemployment allowance, rent 411 €/month).
Income
Marginal tax rates
A single person is an ‘easy’ case
Marginal tax rates are high
The marginal tax rates are higher in the BI model
Among low- income brackets in particular

32. Participation tax rates of a wage earner living alone, current model and basic income of €550 and €750 a month

33. There are incentive problems
Composition of income and effective marginal tax rate of unemployed single parent with 2 children in day care (some day care fees), rent €761. Present system and BI of €550.
Income
Marginal tax rates
There are incentive problems
Increase in earnings €1,000 to €3,000 does not necessarily increase net income.

34. Participation tax rate of a single parent who is unemployed/becoming employed (adjusted basic allowance, eligibility for housing allowance and social assistance, day care fees considered), work income of €0->€2,000, current transfer system and basic income of €550 and €750 current tax system and flat-rate taxes

35. Basic income as a possibity (Honkanen, Kangas & Simanainen 2017):
Universal basic income is not a universal solution
Much depends on the context
E.g. if a claimant is getting many benefits BI may not be better than the present one when it comes to incentives
But there are other dimensions, too

36. Implanting a seemingly simple system into a very complex social policy system is no that easy…

37. The OECD (2018) recommends universal credit insetad of basic income

38. Prime Minister’s two expert groups (EG)
An EG for combatting inequality
Dead-line the 21st 2018
Homogenization of some basic benefits and a possible unification towards universal credit
Political and institutional obstacles
Many ‘basic’ benefits e.g., sickness and unemployment are based on contributions -> the payers have vested interest (to say no)
The EU legislation?
An EG for activation and basic security
Dead-line in spring 2019
In principle can make plans to reform everything
A wide representation of political parties and social partners
Hard to achieve consensus on big reforms
E.g. a universal unemployment insurance will be opposed by trade unions

39. Bureaucratic traps
Shifts in employment / social security statuses may cause problems and uncertainty among the benefit recipient
The vicious combination of income traps with bureaucratic traps
“If I accept the job for 6 months or so do I again qualify to that benefit I had?”
To simplify and tighten the basic security safety net so that
Nobody will fall through
Nobody needs to be afraid of losing the safety net
Encourage people to take risks
Ffö Ff
A person is unemployed, gets sick, recovers, waits for labour market statement to qualify to unemployment benefit and gets social assistance until gets again unemployment benefit
All these benefits are paid by Kela
Thus: there are possibilities to stream-line the system