Report issued on social security reforms

An expert group set up by the Austrian government to examine the social security system issued its report in September 2000. The report, which was mainly motivated by the government's wish to cut welfare expenditure, contains a number of proposals for cost-cutting reform. The social partners have given the proposals a mixed reception, with employees' organisations strongly opposed and employers generally in favour.

The finance minister in Austria's right-wing coalition government, Karl-Heinz Grasser, intends to cut expenditure on the social security and welfare system by ATS 5 billion, following a previous government plan which provided for a reduction of ATS 3 billion, as part of a set of spending cuts aimed at achieving a balanced budget by 2002. As part of this process, the government commissioned a group of experts to assess the efficiency of social security provision and the extent to which it fulfils its intended aims (its "accuracy", or Treffsicherheit), as well as to identify potential areas for reductions in the welfare budget. Four working groups were established for discussions on specific aspects of the welfare system, covering: health and accident insurance; unemployment insurance and labour market policies; care and social assistance; and family assistance. Experts from a broad spectrum of institutions participated in these forums, including public authorities, the social partners and non-governmental organisations.

The expert group's report was published in September 2000 (Erhöhung der Treffsicherheit des Sozialsystems). Its findings attracted much attention and sparked intense debates in public and among the social partners.

The coordinator of the expert group, Wolfgang Mazal, stated that the financial means saved by possible expenditure cuts should not be used to reduce the general state budget deficit, but should rather be redistributed within the social security budget, since some welfare provisions are deemed to be insufficient. This recommendation conflicts with the position of the finance minister, all the more so since the impetus for this review of the welfare system originated mainly in budgetary considerations.

Main findings

The key findings of the report - those seen as particularly important in the public debate and regarded as appropriate reform measures by the government - are set out below.

Abolition of free co-insurance for family members

In principle, all gainfully employed people must pay contributions to the social insurance system in order to be eligible to receive social insurance benefits. Employment is thus an essential precondition for participation in the welfare system. There are, however, a few exceptions, notably the family members of insured people, who are insured without paying contributions. This regulation should be changed, in the view of the expert group. Children and those spouses who are engaged in nursing family members or childcare should continue to be included in the health insurance system without charges, while others (or their spouses in paid employment) should be obliged to pay contributions. The report also raises the question of the duration of the free co-insurance of spouses not in paid employment occupied with childcare. About 95,000 spouses without children are currently covered by free co-insurance, of whom 45,000 are below the age of 50.

Extending eligibility of benefits

The experts identified several discrepancies in contributions and benefits. Employees whose income from one employer is below a certain indexed threshold ("minor employees" - geringfügig Beschäftigte) are exempted from compulsory health and pension insurance. However, they may opt to pay social security contributions ("opting in") or not. Employers, on the other hand, are obliged to pay employers' contributions in respect of such minor employees if their total paybill for such workers is more than 1.5 times the income threshold (AT9711144F). Another problem identified is the difference in contributions between the self-employed and the so-called "new self-employed". The latter - though formally self-employed - work for one employer and their employment conditions resemble very much those of employees. The experts recommend changing the existing legislation covering the contributions of the self-employed (including farmers) as well as the opting-in regulations for minor employees, since different levels of contributions currently lead to the same provision of health benefits. Furthermore, they point out that the Constitutional Court has obliged the legislator to adjust these regulations.

Changes in unemployment benefits

The present conception of unemployment insurance is seen by the experts as outdated, since this insurance covers only employees. Those in new forms of employment, as well as the self-employed, are not covered by unemployment insurance. The report thus calls for adjustments to the current scheme. However, it also goes further, by stating that the inclusion of all employees and self-employed in the system could overturn the prevailing insurance principle (Versicherungsprinzip) - ie that unemployment benefits are based on insurance. A "dual system", consisting of a non-contributory basic provision and a component based on compulsory contributions, could broaden the scope and function of the state-based unemployment insurance scheme. However, the experts agree that such a complete change in the system could be achieved only after intensive discussions and am examination of the legal structure. A further proposal on unemployment benefits is that benefit entitlement should be suspended for four weeks when an employment relationship is cancelled by mutual agreement.

Industrial injuries pension

The report states that the payment of industrial injuries pensions (Versehrtenrente) may currently lead to an accumulation of multiple benefit entitlements. The industrial injuries pension is intended as a long-term benefit and is paid in the event of a reduction in earning capacity of at least 20% caused by an accident at work or occupational illness, for as long as this reduction in capacity lasts. Occasionally, the sum of the income from all sources of benefit payments may exceed the income before the accident. The experts argue that industrial injuries pension entitlement could be limited to the recipient's active working period or be reduced after retirement, since receipts from pensions and from accident insurance may cumulate. The resulting expenditure cuts could amount to ATS 600 million.

Social assistance and care insurance

In a general statement, the report says that social assistance (Sozialhilfe) is unsatisfactory. It states that there is no potential for expenditure cuts in this area, and that additional means should be provided. The experts make no specific proposals regarding the improvement of social assistance. Unlike social assistance, care insurance (Pflegesicherung) is deemed to be a highly accurate measure, in that it successfully targets the correct group. The experts suggest up-rating care benefits, something which has not occurred since 1995.

Reactions from social partners

Employees' and employers' organisations reacted quite differently to the government's reform plans and the proposed measures. The Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) and the Chamber of Labour (Bundesarbeitskammer, BAK) oppose the announced expenditure cuts and see no potential for reductions in social welfare outlays. In order to achieve the government's budgetary goals, they propose increasing the "tax on foundations" (Stiftungssteuer), through which ATS 2 billion could be raised (legislation provides tax privileges for investments in foundations). A recent extension of the coverage of the benefit (Karenzgeld) payable to parents who opt to take unpaid leave should be abolished, saving an additional ATS 8 billion. Regarding the social security system, ÖGB and BAK have identified various problems. Their demands include the following measures:

• including new forms of employment in the insurance system;

• more efforts to reintegrate women into the labour market after years out for childcare purposes;

• introduction of an "experience rating" in the unemployment insurance scheme, whereby employers who regularly dismiss employees and hire them again afterwards should pay the additional costs caused; and

• improved preferential terms for the insurance of people engaged in providing care to family members and up-rating of the care allowance;

In general, ÖGB and BAK regard the government's proposed reform plans as involving a redistribution in favour of employers.

By contrast, the Chamber of the Economy (Wirtschaftskammer Österreichs, WKÖ) and the Federation of Austrian Industry (Industriellenvereinigung, IV) view current social security expenditure as too high and as failing to achieve its objectives. IV demands that welfare provision should increasingly be financed by the beneficiaries rather than the public as a whole. In the working groups, IV raised a variety of proposals which would mean a substantial cut in welfare expenditure, including:

• abolition of non-contributory co-insurance of family members;

• new regulations on the industrial injuries pension, in order to prevent accumulation of pension payments;

• deducting periods of sick leave to some extent from holiday entitlement;

• abolition of two public holidays; and

• new regulations which shorten the duration of unemployment benefits.

WKÖ generally supports the government plans to cut expenditure. In criticising the present welfare system, it claims that social welfare spending is rising faster than Austrian GDP and tax revenues, and calls for it to be aligned with the productivity of the economy. In particular, WKÖ challenges the following current provisions because it claims that they are subject to frequent misuse:

• periods of treatment in health resorts are not counted as part of annual holiday entitlement. Hence it is possible for employees to obtain holidays for several months;

• free provision of health insurance services is argued to induce excessive use; and

• free access to universities prolongs the duration of studies and results in excessive provision of related welfare benefits.

Despite these contrasting positions, there is one proposal on which the social partners are agreed. The presidents of ÖGB and WKÖ, Fritz Verzentnitsch and Christoph Leitl, reject the proposed suspension of unemployment benefits when employment is terminated on the basis of mutual agreement. This reform would especially hit seasonal workers. Both presidents referred to a recent accord between WKÖ and the Union of Hotel, Restaurant and Personal Services (Gewerkschaft Hotel, Gastgewerbe, persönliche Dienste), which provides for a prolongation of the employment relationship of the sector's seasonal workers. The social partners estimate that this will cut ATS 600 million in costs for the social security system.

Statistical evidence

The Ministry of Social Affairs has conducted an assessment of the effectiveness of social security payments. According to the European Household Panel Survey, in 1995 about ATS 100 billion (more than 60% of the total welfare budget) was distributed among households in lower income groups.

As the table below indicates, people on lower incomes are the main beneficiaries of the welfare system. Obviously, unemployment and the accompanying loss of income is often accompanied by greater social risks, attracting more welfare payments. More than 50% of all unemployment benefits are received by the lowest-income families. Generally, welfare payments cover only part of the recipients' loss of income or higher expenditure needs. In many cases, the payments help to combat poverty. This analysis refers to monetary payments, and does not consider other welfare services, some of which are not "accurate" in the sense that, while low-income groups are the main beneficiaries, groups with a higher income also benefit - examples are education spending and measures to promote house-building.