Controversy surrounds social security financing

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In the Netherlands, there has been a long struggle over how responsibilities for administering social security should be divided between social partners and the government. The Dutch social security administration has been reorganised - most recently from March 1997 - under pressure of criticism about organisations in which the social partners play a dominant role. Financing the social security system has become a structural problem in the relations between the Government and the social partners. This has become especially manifest in conflicts concerning the level at which social security contributions should be set.

In the Netherlands, for a considerable time social partners and politicians have been exercised about the way in which the social security administration should be organised. This was already the case during its inception in the first decades of this century. The political struggle which ensued concentrated on the distribution of responsibilities to be assigned between the government and the employers' and employees' organisations. The struggle had both ideological and practical components, and even resulted in slowing down the development of social security in the Netherlands: although adopted in 1913, the Sickness Act came into force only in 1930, due to disagreement about the organisation of its administration.

As the social security system expanded, relations between social partners and government resulted in a complex structure of administrative organisation and its financing. The 1953 Social Security Organisation Act (Organisatiewet Sociale Verzekering, OSV) streamlined this system somewhat and created a three-tier system:

  • social insurance relating to labour relations is administered jointly by employers' and employees' organisations. These are called industrial insurance association s or bedrijfsverenigingen, and enjoy the legal status of a statutory entity according to public law. Benefits are financed by means of contributions directly charged to employers, or deducted from employees' wages;
  • national insurance is administered virtually solely by government bodies. Their boards are usually tripartite in that, in addition to representatives from the social partners, they include "independent members" appointed by the government. Benefits are financed by contributions collected by the tax authorities; and
  • the final tier, social services, is usually administered by the municipalities without administrative involvement of the social partners. No contributions are collected, and all costs are met by the general fund.

In the course of the 1980s, there was an increasing degree of political criticism of the organisations in which social partners participated. It was alleged that they were unwieldy, contributed too little to active labour market policy and unnecessarily enlarged the volume of benefits. The criticism culminated in a report published in 1993 by a parliamentary committee set up to investigate the social security administration. As a result of this criticism, the OSV was amended in both 1995 and 1997. These changes continue to have a lasting effect on the relationship between social partners and the government. Where relevant, these effects are mentioned below.

Social partners and social security administration

Until 1995, there were 26 industrial insurance associations in the Netherlands. These were jointly managed and organised according to their sector of industry, and were responsible for policy-making, collection of contributions and the administration of employee benefits. These benefits included those provided for in the Sickness Act (Ziektewet, ZW), the Disability Insurance Act (Wet op de arbeidsongeschiktheidsverzekering, WAO), the Unemployment Act (Werkloosheidswet, WW) and, since 1976, also the General Disability Act (Algemene Arbeidsongeschiktheidswet, AAW). In addition, since 1987, these organisations have also been responsible for administering the Supplementary Benefit Act (Toeslagenwet, TW) allowing benefits to be supplemented to reach the defined minimum level of income. Many industrial associations allowed their practical administration to be carried out by administrative offices, and since 1995, all have been obliged to contract this work out to an officially recognised administrative institution (Uitvoeringsinstellingen, UVIs).

Until 1995, both policy making and administrative supervision were also in the hands of the Social Insurance Council (Sociale Verzekeringsraad, SVr), a tripartite organisation. Due to the criticism mentioned above, a decision was made to divide up its tasks. Since 1995, supervision has rested with the Social Security Supervision Board (College van toezicht sociale verzekeringen, Ctsv), which is exclusively controlled by the government. The industrial associations were meanwhile dissolved as of 1 March 1997, and a National Institute for Social Security (Landelijk instituut sociale verzekeringen, Lisv) has been established to oversee the policy making, management and administration of the social programmes including the WW, WAO, AAW and TW. The management of the National Institute for Social Security also has a tripartite composition.

Social partners and social security funds

In order to finance each programme's benefit payments, funds were created according to a system of apportionment (omslagstelsel). This means that the costs of the benefits paid for a given year are to be met by contributions collected in that year. There are two funds which are specifically for the WW: the "reduced pay fund" (wachtgeldfonds) to pay benefits awarded during the first 13 weeks of unemployment; and the General Unemployment Fund (Algemeen Werkloosheidsfonds) for the remaining payments.

Until 1997, the "sick pay fund" (Ziekengeldfonds) and the "reduced pay fund" were administered by boards identical to the boards of the industrial associations. The boards were entitled to establish independently the percentages of contributions to be paid, which could vary according to the sector of industry. The Supplementary Benefit Fund (Toeslagenfonds) has a central tripartite board, and is not financed from contributions, but directly from general tax resources.

The last funds to be mentioned are the General Disability Fund (Algemeen Arbeidsongeschiktheidsfonds, for the AAW), the Disability Fund (Arbeidsongeschiktheidsfonds, for the WAO) and the General Unemployment Fund (for WW benefits lasting more than 13 weeks). Although this last-mentioned fund was partially financed from general tax revenue until 1980, these funds are now all central funds financed from contributions. All three funds had central, tripartite boards. Since 1 March 1997, the boards have been subsumed under the board of the tripartite Lisv.

Establishing the level of contributions

Not only are the fund boards responsible for the administration of the fund, every June they also have to decide on the contribution percentage for the following year. They reach their decision on the basis of the previous year's financial accounts and a forecast of developments expected for the next year. Their primary objective is a long-term solid administration of the fund.

The State Secretary of Social Affairs is entitled to accept or reject the level of contributions proposed by the fund boards. If the proposal is rejected, the State Secretary is authorised to establish a different percentage. In addition to considerations of responsible fund management, the State Secretary must also bear the socio-economic consequences in mind. The level set may, amongst other effects, have consequences for incomes policy and for the volume of employment and general economic development. Furthermore, at the moment of decision, the State Secretary usually has more recent information at his or her disposal about the expected impact of new socio-economic policy measures on the number of claims to the funds.

The varying responsibilities of the social partners on the one hand and those of the government on the other create a structural tension in the relations between the two which surfaces from time to time. In February 1997, the fund boards announced a NLG 4.8 billion deficit for the abovementioned funds which, though not an absolute figure, gives an indication of the size of the problem.

In response to this announcement, representatives of the social partners and their social security organisations criticised the government for having set contribution levels too low since 1993, despite their warnings, for incomes policy reasons. The legitimacy of this way of conducting incomes policy has come under fire from many groups including VNO/NCW, the largest association of employers in the Netherlands, and the Christian Trade Union Federation (CNV). The CNV announced that under these circumstances it would no longer be prepared to take responsibility for the administration of the funds. It even threatened to leave the boards of the funds if the deficit was not quickly paid off.

In addition to the dissatisfaction of the fund boards, the government now faces the problem of how to pay off the deficit. A complete charge on the deficit would lead to a 0.75% decline in consumer purchasing power for three years. The government considers this to be an unacceptably austere measure.

Commentary

The recent conflict over contribution levels is part of an ongoing struggle in the Netherlands over the responsibilities of the social partners and the government in providing social security. In the 1990s, developments have been definitely swinging in favour of the government. In particular, the social partners have been absolved of their supervisory tasks.

As for the deficit, many proposals to solve the problem have emerged. Some advocate a one-off payment to liquidate it from general tax revenue, and so at the expense of taxpayers. Other proposals reduce the problem to one of appearances by the complex manipulation of accounting procedures. (R Knegt, HSI)

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