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Speech: Improving minimum income support

European Commission - SPEECH/14/286   03/04/2014

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European Commission

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László ANDOR

European Commissioner responsible for Employment, Social Affairs and Inclusion

Improving minimum income support

Seminar on "Addressing social divergences in European societies: improving minimum income support"

Brussels, 3 April 2014

Ladies and Gentlemen,

I welcome the opportunity to introduce this seminar on improving minimum income support, which is a cornerstone of the Commission's Social Investment Package.

I am happy to see that we have a variety of speakers here today - academics, business people, and policy makers – which will allow a fruitful and pragmatic discussion on the choices and trade-offs of Member States on this topic.

To kick off today's seminar, l will start with the importance of minimum income: why is it socially and economically relevant? Secondly, I would like to highlight the role of the European Commission in this regard. I will conclude by discussing the links between this seminar and the consultation on the review of the Europe 2020 Strategy.

Let me start with shortly recalling some facts and figures to shed light on our topic of discussion.

The Europe 2020 Strategy towards smart, sustainable and inclusive growth included targets to lift at least 20 million people out of poverty and social exclusion and raise employment levels of the working-age population to 75%.

But despite our collective efforts, the most recent data show that the EU is drifting away from this target trajectory. Since 2008 there are 6,6 million more people living in poverty or social exclusion, for a total of 123 million people in 2012. That equals the number of people living in Germany and Spain together. Poverty and social exclusion have increased in more than one third of the Member States in 2011 and 2012, and poverty and social exclusion of children has increased in 18 Member States since 2008.

The crisis has substantially altered the dynamics of inequality and affected different sections of the population in different ways. The Joint Employment Report, published together with the Annual Growth Survey in November last year, included for the first time an employment and social scoreboard. Amongst other things it shows that inequality has grown in most of the Southern Member States1 as well as five others2. The scoreboard also shows that there is both a wide dispersion and growing divergence between Member States in the evolution of gross household disposable income in real terms.

How the level and depth of poverty has been affected by the crisis depends on many factors: the employment and economic situation, as well as the social policies in place and the ways they have been reformed. Evidence shows that Member States which went through important social policy reforms in times of economic growth have fared much better during the crisis. Other countries with important social policy challenges have had to implement reforms in very economically unfavourable contexts. Having an adequate and activating minimum income scheme is part of such reforms.

To help Member States with these reforms, the Commission adopted the Social Investment Package slightly over a year ago. The Package stresses the need for sustaining investment in our social systems and social cohesion and provides guidance on how to do this. We need to learn from the best performing European welfare states, to be simpler, to adopt a life-cycle approach, and to work more coherently against gender inequalities which is also key with respect to minimum income schemes. The Package furthermore includes a Recommendation on fighting child poverty, as reducing inequality at a young age by investing in early childhood education and care must be a shared commitment of all national governments.

Ladies and Gentlemen,

Providing adequate livelihoods through minimum income support and enabling services with a focus on returning to work and society is essential for a socially inclusive Europe.

Minimum income schemes help to sustain income, decrease inequalities and reduce poverty. There is, however, a growing concern that the gap between more developed and less developed social welfare systems is increasing. If the lack of minimum income support leads to large differences within populations, this could result in social resentment and weaken the legitimacy of political processes and institutions.

A balanced social protection system ensures that people who are out of work can survive and retrain, without having to rely on other sources of income like their parents' pensions, child allowances, remittances from abroad, or disability pensions. I indeed believe that it is the role of the State to provide a minimum income to its people if needed. Evidence shows that Member States with good social welfare policies are among the most competitive and prosperous.

Minimum wages fulfil a similar role as minimum income, but for working people: by underpinning prices, thereby reducing the risk of deflation during economic downturns; by helping to sustain aggregate demand; by helping to boost wage equality during a recession by maintaining an adequate standard of living for the most vulnerable workers (thereby preserving social peace).

When setting minimum wages, it should be ensured that developments in the minimum wage support job creation, social cohesion and competitiveness. At the same time, the link with minimum income, and vice versa, needs to be assessed, in order to avoid unwanted benefit traps.

Mechanisms for reviewing minimum income benefits over time are important to ensure they are adequate. However, measuring ‘adequacy’ is problematic. Setting the monetary poverty threshold at 60% of median income does not always reflect variations in consumption patterns and the cost of living across a given country.

Given the possible significant negative spill-over effects of inadequate minimum income, and the various calls of stakeholders, the Commission has proposed in its Social Investment Package to develop reference budgets. Such reference budgets define poverty thresholds on the basis of a basket of goods and services that are considered necessary to reach an acceptable standard of living within a given country, region or city. They also show the link with the provision of adequate social services and the redistributive role of these services.

By using reference budgets, policy makers can ensure that income support reflects the real costs of living, and can help to raise people's standards of living.

To encourage Member States to adopt a social investment approach, this year's Annual Growth Survey argued that better performing social protection is essential to support social change and reduce inequalities and poverty over time. It called for active inclusion strategies to be developed, encompassing efficient and adequate income support, activation measures as well as measures to tackle poverty. More attention is also put on the rise in inequalities in societies.

The Member States' performance is monitored through the European Semester. In last year's Semester, the Commission has proposed recommendations to several Member States related to the alleviation of poverty by improving the effectiveness and efficiency of social transfers and better targeting the benefits.

Thanks to the guidance in the Social Investment Package, the attention in the Annual Growth Survey and the country-specific recommendations, some Member States have indeed adopted a social investment approach to reducing poverty and supporting inclusion into the labour market.

Furthermore, the Commission is assisting program countries such as Greece and Cyprus to develop adequate minimum income schemes within their budgetary margins. I am very pleased with the steps that Greece has taken on the pilot on minimum income. The Commission will be monitoring its implementation closely.

Ladies and Gentlemen,

I started by highlighting the disappointing lack of progress on the poverty target of the Europe2020 Strategy. Neither are we on track to meet our employment, research and development goals. This was also reflected in our Communication "Taking stock of the Europe 2020 Strategy" that was published on 5 March.

Clearly this means that we have to intensify our efforts at all levels.

From its side the Commission will continue to support Member States to make the right social investment choices in order to achieve adequate social standards. This way we can avoid a 'race to the bottom' which will weaken the cohesion of the Union.

Today's seminar will bring us a step further in getting clearer on how to ensure adequate income support in all Member States. I am glad that the Greek Presidency will make this also one of the key topics at the informal meeting of Ministers for employment and social affairs by the end of this month. Today's outcome will certainly feed into the debates we will be having at that occasion.

I thank you all for your attention and wish you a fruitful seminar.

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