No. 4




Fighting Poverty with Social Policy

19 December 2001


RiTo No. 4, 2001

A great proportion of the state’s social benefits, including welfare, are paid to families that are not poor. Of the financial means allocated for ensuring the coping threshold, 62.3% is spent on supporting non-poor families. In the case of child or unemployment benefits, it is actually not the aim that these should reach only poor families. But unemployment benefits turned out to be directed most of all towards the poor – nearly half was received by the families living below poverty level.

Among social benefits, generally children’s allowances, received in all cases, are dominant. In addition, all legal residents of Estonia with low incomes are entitled to apply for the basic welfare to ensure the minimum income level. Thus the dominant system in our country is more of a Beveridge-type social protection system, universal in its character. Implementation of the unemployment insurance system as of the year 2002 will add the insurance principles and unemployment insurance compensations that will depend on previous insurance premiums.

State expenditures on social benefits are exceptionally low in Estonia, and when expressed as proportions of GDP, the figures predominantly reflect a declining trend. The real value of the benefits is also decreasing fast. Using the most internationally relevant comparison – the benefits level index to GDP per capita – the rate of unemployment benefits and basic welfare will be substantially lower in Estonia than in any of the OECD countries. Only the children’s allowances’ rate to GDP per capita will exceed that of some OECD countries. This is also characteristic of the state’s view on alleviation of poverty.

The Estonian state has no resources to ensure that the real value of universal-type social benefits remain constant. Therefore, sooner or later Estonia will have to make a political choice, changing the principles of income policy in order to factually take into account the financial situation of the family: the household’s incomes, property situation, and features characteristic of the family structure (in the first place, the presence of members capable for work in the family, etc.) as the basis for calculations. There is no state policy in Estonia that would help people out of poverty by means of active measures and other policy. The extent of dependence of the uninsured on the state benefits is high, which may in turn encourage a dependence mentality. The benefits are of extremely passive character and are confined to monetary payments to all those who meet the comparatively liberal criteria under which benefits are granted.

Full article in Estonian