The social impact of fiscal consolidation measures: the need to avoid a second crisis
Newsletter 2011-1
Publication date : 2011-06-24
In many EU Member States, the overall effect of the
crisis and the introduction of fiscal consolidation measures during 2010 have
had a significant impact on services. However,
the severity of the impact has varied significantly across countries. In some
cases, there have been severe cutbacks to services while in other cases the impact has been less a result of cutbacks and more the consequence of having to cope with a significant increase in demand without any increase in existing (often inadequate) resources.
The negative impact of consolidation measures on key services seems to be
greatest where a much higher proportion of expenditure savings is being made
from cutting budgets than increasing taxes. In just a few Member States, there
has been only a very limited or no negative impact on services. Also, in
several countries the impact has been significantly less severe than expected,
in part due to the government stimulation of the
economy and interventions to keep people in jobs and to mitigate the worst
effects of the crisis. In a few countries, the full impact of cutbacks is still to be experienced. Overall, the outcome as regards those at risk of
poverty seems to have been more serious in most Member States
in 2010 than in 2009; not only are there more people
likely to have become long-term unemployed and to have sunk
deeper into poverty, but there are also more people
reliant on benefits and social services in many countries. During the Autumn of 2010, members of the
EU Network of Independent Experts on Social Inclusion produced country reports focusing
on the social impact of the crisis in the 27 Member States in the light of
cutbacks in government spending, which have been implemented virtually
throughout the EU. The Network Core Team (NCT) has prepared a short report
summarising the main findings. The report shows that the extent of the impact
on poverty and social exclusion of the crisis varied markedly not just between
countries but also between regions and localities. The impact is often
particularly severe in deprived urban and some social housing areas, or in
certain regions where some particular groups of the population (unskilled young
people, manual workers in mechanical engineering and subcontracting) and
manufacturing sectors have been particularly hard hit by the crisis. The
overriding finding is that overall not enough efforts are being made to protect
the most vulnerable and to pursue the aims of the Europe 2020 Strategy for
smart, sustainable and inclusive growth, most especially the objective of reducing
poverty and social exclusion across the EU by 20 million by 2020. Ultimately, the Network’s
findings highlight that the measures introduced to reduce budget deficits and
rein in debt accumulation in the wake of the crisis require special efforts to
ensure the maintenance of an inclusive society and to avoid the social problems
which could result from cutbacks in welfare spending. In the light of this, the
NCT report puts forward a number of suggestions to safeguard social inclusion
and to ensure that the social dimension of the Europe 2020 Strategy remains on
track. In particular, Member
States should monitor and report on how austerity measures impact on poverty
and social exclusion in general, and in respect of their national Europe 2020 social
inclusion targets specifically, and on the methods being used to guard against
the potentially socially divisive impact of many of the measures concerned. One
such method which could be better and more widely used is social impact
assessment, both ex
ante
and ex post, of all relevant measures
implemented at EU and country level. This, however, requires more timely
statistical data, and Member States, in this regard, need to make more use of the
administrative and register information which they already collect (especially to
undertake tax-benefit modelling). When Member States
implement cutbacks in public spending, it is of the utmost importance that, at
the same time, they maintain and reinforce social inclusion policies –indeed this
is when the latter are most necessary. In particular, priority should be given
to ensure that the ability of local authorities to carry out their duties, the
maintenance of an adequate level of minimum income for all, sufficient resources
for “emergency” governmental and non-governmental social services (which become
even more important in a period of crisis and its aftermath) and
intergenerational solidarity are protected or reinforced. It is equally important
that any changes in tax and social welfare systems are balanced and progressive
and that the potential for austerity measures to lead to labour market segmentation,
in-work poverty and atypical work is closely monitored by Member States
and the European Commission. In countries where
the social security system was weak prior to the crisis, the aim should not be
"to get back to what we had" but rather see this as an opportunity to
create better systems based on fairness, equality and sustainability. There is concern
that means-tested social assistance schemes are not fit-for-purpose. The need
to ensure that they guarantee a sufficient income for people to live in dignity
is already being pursued by Member
States and the
European Commission following the 2008 EU Recommendation on Active Inclusion,
which stressed the importance of implementing a comprehensive approach
combining adequate income support, inclusive labour markets and access to
quality services. However, to lessen dependence on means-tested assistance
schemes, Member States should consider reviewing their unemployment benefit
systems with a view to extending their coverage and lengthening periods of
entitlement. In the event that EU
intervenes to support a Member State in a crisis situation as a result of the
economic and financial crisis, the conditions attached to recovery packages
should include social targets to protect the most vulnerable and to ensure that
the burden of recovery is spread equitably. In the current
context, Member States should be maintaining and expanding their active labour
market and active inclusion measures and, wherever possible, EU Structural
Funds should be prioritised to support this process. It would be useful if countries
reported on this in their National Reform Programmes, to share the experience
and lessons learned. The EU is at a
critical juncture as regards its on-going response to the crisis. The measures
that have been adopted as well as those which will be implemented in the coming
months and years will play an enormous part in determining whether the EU
achieves its 2020 targets to reduce poverty and social exclusion and how it
moves forward. There is a pressing need to pursue a balanced response to the
crisis and the reduction of national deficits. To do so, governments have to
recognise that smart and sustainable growth requires an investment in the
skills and well-being of all and to act accordingly.
