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Employment and Social Developments in Europe 2014
4.5. The development Chart 53: Trends in financing of social protection
in the financing
of social protection: 1.8
risks and opportunities
EU-27
The share of social security 1.7 EA-18
contributions in the financing
of social protection has Relative importance of social security contribution in the financing of social protection with respect to general taxation (ratio) 1.6
decreased for both cyclical
and structural reasons 1.5
Tax-benefit systems work as automatic sta -
bilisers, which meant that they had a positive 1.4
effect in terms of maintaining gross house- 2005 2006 2007 2008 2009 2010 2011
hold disposable income in all Member States Source: ESSPROS.
in the first phase of the crisis. However, this
also represented a further challenge to gov- trend changed in 2011 in the EA-18 Mem- unemployment benefits (Social Protection
ernment financing as tax revenues declined ber States (Chart 53). Those Member States Committee, 2014).
in line with falling GDP, while expenditure with the option of earmarking taxes have
levels did not, although the overall impact used it to balance the effects of the reduced In the context of increased pressure on the
of these different adjustments on govern- financing of social protection from social level of deficits, Member States were recom -
ment budgets varied greatly between Mem - security contributions, but currently only six mended to shift taxation away from labour,
85
ber States (Mourre et al., 2013). Member States have this facility ( ). The and in particular social security contribution,
sharp decline in the financing of social pro- towards less growth-hampering tax bases
Social transfers played an important role tection from social security contributions in such as consumption and property (Euro -
throughout Europe (Dolls, 2012) and, dur - 2009 was mostly due to cyclical factors but pean Commission, 2013g; European Com-
ing the first phase of the crisis, the contribu- structural factors also contributed. mission, 2013h). In 2014, Belgium, Germany,
tion of social transfers to Gross Household France, Italy, Latvia, Austria, Czech Republic,
Disposable Income was three times greater Indeed, changes in social protection financ- Spain and, implicitly, France and Germany
than taxes, while taxes did not play an effec - ing did not affect all benefits equally, nor received a Country Specific Recommenda-
tive stabilising role in all Member States all tax sources with the decreasing impor- tion on shifting the tax burden away from
84
(European Commission, 2013a ( )). Social tance of social security contributions in labour, while Hungary and Romania have
security contributions are estimated to be total receipts being mostly caused by a been recommended to lower the tax burden
less sensitive to the cycle than indirect taxes, declining share of social security contribu- on labour and NL to reduce tax disincen -
while personal and corporate income taxes tions being funded by levies on employers tives on labour. Since the beginning of the
are the most sensitive (Mourre et al., 2013). (Social Protection Committee, 2014). The crisis, Bulgaria, Czech Republic, Denmark,
shift in financing between 2007 and 2011 Germany, France, Latvia, the Netherlands,
The crisis accelerated the declining impor- was concentrated on pensions and, to a Slovenia, Finland, Sweden and the United
tance of social security contributions in the lesser extent, health, while no clear trends Kingdom have reduced the tax wedge on
financing of social protection, although the are observed in the financing of family and low wage earners ( ).
86
Chart 54: Trend in the financing of social protection in Spain and Germany
Spain Germany
1.2 1.2
1.1
1.1
Evolution - base year 2005 1.0 Evolution - base year 2005 1.0 Relative importance of social
0.9
0.9
security contribution in the financing
0.8
to general taxation (ratio)
0.7
0.7 0.8 of social protection with respect
GDP
0.6 0.6
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011
Source: ESSPROS and National Accounts.
Note: Index year is 2005.
86
( ) The source of this data is the ECFIN Tax
and benefits indicators database based on the
( ) In Germany the shift from social security change between 2008 and 2013/2012 in the tax
85
contributions to VAT was only politically wedge for a single person without children, with
84
( ) See Chapter 6 of European Commission, 2013a. earmarked. earnings at 67 % of a full-time production worker.
72
4.5. The development Chart 53: Trends in financing of social protection
in the financing
of social protection: 1.8
risks and opportunities
EU-27
The share of social security 1.7 EA-18
contributions in the financing
of social protection has Relative importance of social security contribution in the financing of social protection with respect to general taxation (ratio) 1.6
decreased for both cyclical
and structural reasons 1.5
Tax-benefit systems work as automatic sta -
bilisers, which meant that they had a positive 1.4
effect in terms of maintaining gross house- 2005 2006 2007 2008 2009 2010 2011
hold disposable income in all Member States Source: ESSPROS.
in the first phase of the crisis. However, this
also represented a further challenge to gov- trend changed in 2011 in the EA-18 Mem- unemployment benefits (Social Protection
ernment financing as tax revenues declined ber States (Chart 53). Those Member States Committee, 2014).
in line with falling GDP, while expenditure with the option of earmarking taxes have
levels did not, although the overall impact used it to balance the effects of the reduced In the context of increased pressure on the
of these different adjustments on govern- financing of social protection from social level of deficits, Member States were recom -
ment budgets varied greatly between Mem - security contributions, but currently only six mended to shift taxation away from labour,
85
ber States (Mourre et al., 2013). Member States have this facility ( ). The and in particular social security contribution,
sharp decline in the financing of social pro- towards less growth-hampering tax bases
Social transfers played an important role tection from social security contributions in such as consumption and property (Euro -
throughout Europe (Dolls, 2012) and, dur - 2009 was mostly due to cyclical factors but pean Commission, 2013g; European Com-
ing the first phase of the crisis, the contribu- structural factors also contributed. mission, 2013h). In 2014, Belgium, Germany,
tion of social transfers to Gross Household France, Italy, Latvia, Austria, Czech Republic,
Disposable Income was three times greater Indeed, changes in social protection financ- Spain and, implicitly, France and Germany
than taxes, while taxes did not play an effec - ing did not affect all benefits equally, nor received a Country Specific Recommenda-
tive stabilising role in all Member States all tax sources with the decreasing impor- tion on shifting the tax burden away from
84
(European Commission, 2013a ( )). Social tance of social security contributions in labour, while Hungary and Romania have
security contributions are estimated to be total receipts being mostly caused by a been recommended to lower the tax burden
less sensitive to the cycle than indirect taxes, declining share of social security contribu- on labour and NL to reduce tax disincen -
while personal and corporate income taxes tions being funded by levies on employers tives on labour. Since the beginning of the
are the most sensitive (Mourre et al., 2013). (Social Protection Committee, 2014). The crisis, Bulgaria, Czech Republic, Denmark,
shift in financing between 2007 and 2011 Germany, France, Latvia, the Netherlands,
The crisis accelerated the declining impor- was concentrated on pensions and, to a Slovenia, Finland, Sweden and the United
tance of social security contributions in the lesser extent, health, while no clear trends Kingdom have reduced the tax wedge on
financing of social protection, although the are observed in the financing of family and low wage earners ( ).
86
Chart 54: Trend in the financing of social protection in Spain and Germany
Spain Germany
1.2 1.2
1.1
1.1
Evolution - base year 2005 1.0 Evolution - base year 2005 1.0 Relative importance of social
0.9
0.9
security contribution in the financing
0.8
to general taxation (ratio)
0.7
0.7 0.8 of social protection with respect
GDP
0.6 0.6
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011
Source: ESSPROS and National Accounts.
Note: Index year is 2005.
86
( ) The source of this data is the ECFIN Tax
and benefits indicators database based on the
( ) In Germany the shift from social security change between 2008 and 2013/2012 in the tax
85
contributions to VAT was only politically wedge for a single person without children, with
84
( ) See Chapter 6 of European Commission, 2013a. earmarked. earnings at 67 % of a full-time production worker.
72
