Social partners propose new model for combating poverty

The social partners are proposing a new model to measure the official poverty rate in Bulgaria and to provide social assistance to high-risk groups identified. The new scheme would benefit the household rather than the individual. Under the existing scheme, people can apply for multiple forms of income support; this system has proven to create an inequitable and inefficient system, and to discourage people from returning to the labour market.

Following the parliamentary elections in the summer of 2005, the measurement of poverty and an adequate policy to reduce poverty became ongoing topics in the dialogue between the government and the social partners. One of the main conclusions of the debate is that Bulgaria has an uneven and inefficient social network for assistance to unemployed people and disadvantaged groups in society. Moreover, it does not provide incentives for people of active working age to return to the labour market, but instead encourages people to rely on social benefits.

This disincentive to work means that people are more likely to participate in the informal economy. In turn, this makes it more difficult for the government to manage the economy and to calculate state expenditure. For these reasons, reforms are needed, including a standardised social assistance system, based on a defined poverty line and adopted criteria and poverty indicators.

Poverty line

Within the new model proposed for combating poverty, the social partners insist on including a poverty line to be determined on an annual basis. Out of more than 40 possible methodologies used to calculate the poverty line, the social partners’ preference is to adopt the approach based on household consumption. However, the debate is continuing and the government has not yet announced the official threshold for the poverty line for 2006.

The Bulgarian National Statistical Institute (NSI) studies poverty levels using the relative method applied by Eurostat. This method is based on the distribution of households according to their income, and 60% of the average equivalent income has been adopted as the poverty threshold.

Changing the model in Bulgaria requires changes in related terminology. For example, it involves the introduction of the category of ‘household’, which is defined as two or more persons living together in the same home or part of a home with a joint budget and sharing food together regardless of whether they are related. A household can also be classified as a person living alone and having an individual budget both in terms of food costs and other needs. The introduction of the household as a beneficiary of social assistance will reduce the possibility for repeated assistance to individuals or families of the same household.

Weaknesses of current social assistance scheme

The social assistance policy implemented to date is based on the universal principle that every Bulgarian citizen is entitled to social protection whenever they are unable to satisfy their basic vital needs. A total of four main social assistance schemes are currently in operation in Bulgaria:

• guaranteed minimum income to supplement inadequate income;

• allocated energy allowance during the cold weather;

• allocated allowance for those who are permanently disadvantaged;

• family allowance for children.

According to surveys by the social partners, some of the social assistance schemes do not reach the right beneficiaries, thus reducing their impact.

The existing system makes it possible to accumulate entitlements under various laws and regulations, which leads to a more favourable position among certain groups of the population. The conditions for access to the range of social assistance programmes are identical and, if a person meets the criteria, they are entitled to assistance for different social needs, such as a monthly allowance, heating assistance and monthly child benefits.

In reality, the number of different assistance programmes may not seem substantial but when the entitlements are combined, people can accumulate relatively significant amounts under the various laws. Thus, the entitlements can become more valuable than other minimum payments like the minimum wage and the minimum pension. This process of entitlements is a disincentive to work and can encourage abuse of the system.

Proposals of the social partners

The model recommended by the social partners in their discussions with the government assumes the development and adoption of respective weights for each person in a household at risk of poverty. Thus, every person in the household will be included with their individual ratio and each household will receive assistance income based on the poverty line; only incomes below that level will be considered as precarious. An important element of the change is that it will not be possible to upgrade this household income to receive multiple benefits; in other words, depending on the respective needs of the household, it will be entitled to monetary and/or allocated assistance within the overall assistance income budget.

This social assistance approach will allow for targeted and individual intervention, taking into account the needs of everybody rather than favouring certain groups of the population.

The estimates indicate that, after the implementation of the new model, there will be a significant saving of financial resources. The funds saved by this model could be used in turn to develop programmes aimed at generating a more positive attitude towards participation in the labour market, and for the purposes of training and upgrading of skills.

Another option is to develop and implement a programme aimed at encouraging more socially responsible enterprises in the country.

Commentary

Setting the official poverty line in Bulgaria will provide an opportunity to manage and control poverty-related processes and to assess the effectiveness of government social policy. This will mean identifying groups at risk that are most in need of attention, providing the necessary resources for such groups, as well as determining the regions that are most affected by poverty and defining the reasons for such poverty.

Nelly Shtonova, Balkan Institute for Labour and Social Policy (BILSP)