Government proposes new regulations on guaranteed minimum income

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In September 2005, following consultation with the social partners, the Romanian government adopted a bill making amendments to the guaranteed minimum income scheme, which seeks to alleviate poverty. There have been criticisms that the real value of the guaranteed minimum income has been falling.

Over the past 10 years, legislation on social security and social protection respectively for people with low income has taken the form of two laws: Law no. 67/1995 on social security and Law no. 416/2001 on the guaranteed minimum income. In addition to these laws, the government has issued a great many emergency ordinances, ordinances and decisions regulating indexation of the level of of the guaranteed minimum income in line with the inflation rate, and has introduced and amended certain support measures and facilities.

The relevant legislation: defines the right to a guaranteed minimum income as a form of social security, based on the principle of social solidarity; establishes the amount of the monthly means-tested income per family depending on the number of family members; and sets the method of calculation for the benefit as the difference between the guaranteed minimum income threshold stipulated by law and the monthly income of a single working member or the respective family.

Legislation also contains provisions on the standard procedures for entitlement and access to the payment of social security benefits and the obligations of beneficiaries, which include undertaking community work. For such work, the number of working hours is proportional to the amount of social security benefit and the hourly pay is equivalent to the ratio between the national minimum wage and the monthly average number of 170 working hours.

The guaranteed minimum income law passed in 2001 also included provisions on matters such as heating allowances during the winter months, allowances for the wives of men performing military service and universal child allowance. These were subsequently removed and regulated separately.

Need for guaranteed minimum income

The guaranteed minimum income was introduced as an instrument of social security owing to the growing poverty rate as a result of Romania's transition and related economic reforms. According to official data, in 2000, the poverty rate in Romania was approximately 36%; by 2003, the poverty rate had dropped to about 25% and the rate of severe poverty declined to 10% of the population. These developments were the result of economic growth at a pace of over 5% starting from 2000, as well as legislation on social security and the guaranteed minimum income.

In the 2002-4 period, 330,000-420,000 people, or 5% of the population, were granted monthly social security benefits under Law no. 416/2001 on guaranteed minimum income. The total value of social security granted by the state totalled ROL 3,400 billion in 2002, ROL 3,955 billion in 2003 and ROL 4,400 billion in 2004; these amounts represent around 0.20%-0.22% of the GDP and around 15%-20% of state budget income.

Taking into account the low income of local administration budgets, providing financial support to disadvantaged families requires a substantial effort (40% of the budget in 2004 and 47% in 2002).

The national distribution of approved applications for social security benefits varies considerably; in 2004 for instance, out of the 442,000 applications nationwide, 2,400 were filed by people living in Bucharest (out of the 2 million or so inhabitants of the city), while in the county of Iaşi there were 25,000 applications (out of around 600,000 inhabitants), in Dolj there were 24,000 applications and in Vaslui 17,000 (out of 400,000 inhabitants). The counties with the highest number of applications are to be found in the eastern, south-eastern and south-western regions of the country, where the local budget income is considerably lower. The discrepancy between the number of applications and the level of local resources requires money transfers from the state budget.

In each of the three years 2002-4, the monthly average social security benefit per family was ROL 1,020,000 (around EUR 32 in 2002 and EUR 25 in 2004), representing around 60% of the monthly minimum wage in 2002, 40% in 2003 and 36% in 2004.

Amendments to the regulatory framework

The Ministry of Labour and Social Solidarity (Ministerul Muncii Solidarităţii Sociale şi Familiei, MMSSF) and international bodies (including the World Bank) have monitored and evaluated the application of the guaranteed minimum income law, highlighting a number of failures and difficulties, such as:

  • partial payment and in some cases failure to pay social security to people who are entitled to it, owing to lack of local budget funds or to a distribution of resources inconsistent with actual necessities;
  • resorting to state budget sources;
  • biased application of the law in some cases;
  • absence of monthly community service plans and programmes for social security beneficiaries;
  • absence of legal provisions defining the people able to work; and
  • absence of any means of control over, or penalties, for violation of the law.

In response to the various problems, the government proposed a draft bill reforming the guaranteed minimum income. Following debates in the social dialogue board of MMSSF on the draft bill and on proposals made by the social partners, a bill was approved by the government in September 2005, and is due to come into force on 1 January 2006.

The new law provides for: an obligation on mayors to draw up monthly action plans or plans for local community work and to keep records of the work undertaken by able-bodied beneficiaries of social security; a definition of people fit for work and exemptions from fulfilling work obligations; the introduction of certain limits at national level and a requirement for local councils to approve their own evaluation criteria on monthly net family incomes, including single parents; the introduction of provisions on suspension of payment or cessation of entitlement to social security benefits; monitoring activities carried out by local departments of MMSSF; and penalties for violation of the law.

Commentary

The progress made in the accuracy of regulations on guaranteed minimum income is not noticeable in the amount and maintenance of the real purchasing power of the benefit granted by the state. By comparison with the national minimum gross wage, which has indeed showed a positive nominal and real evolution, the minimum guaranteed income has been steadily diminishing.

The level of the guaranteed minimum income has been severely eroded by the evolution of utility costs. In the winter months in particular, the monthly maintenance costs for a two-room apartment tend to exceed ROL 3 million-4 million, while over 3 million pensioners live on an average ROL 2 million monthly pension. These people cannot be obliged to undertake community work.

The harmonisation and convergence of Romanian prices for 'services of general economic interest' with those in European Union countries will continue to give rise to tension and pressure on family and local and central administration budgets. Consequently, the need to increase the guaranteed minimum income will continue to grow. (Luminita Chivu, Institute of National Economy)

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