Politicians are looking to make savings and reduce the budget deficit. One discussion at the Ministry of Social Affairs is to introduce means-tested benefits.

The center's latest report analyzed different scenarios and the potential impact of introducing needs-based benefits on the state budget, poverty and inequality. It included those paid to families, for poverty alleviation and health.

Some would save the government money but not reduce poverty or inequality.

Kaupo Koppel, a senior analyst in labor and social policy, education and economics at the Foresight Center, said giving need-based benefits to those who need assistance the most would ensure the more efficient use of state funds.

"A large part of the state budget of Estonia is made up of social benefits. They could be paid according to need, considering the person's or household's income," he said. "Linking benefits to people's wealth would provide even greater efficiency, but currently there is not enough data to implement this in Estonia."

The analysis shows linking child allowances to household income would have a "significant impact" on the state budget, the center said. Last year, 275,000 households received child allowances in the total amount of €274 million.

"For example, if we start gradually reducing child allowances for those households whose income is at least two Estonian average salaries, the state would be able to save nearly €60 million a year," said Koppel. "It would not have a significant impact on inequality and poverty, though."

On the other hand, if the saved money were directed to increasing child allowances for families with lower than average income, poverty and inequality would decrease significantly, but the state's expenses in total would increase by nearly €100 million. 

Another possibility is to establish an upper-income limit for the allowances for families with many children and stop paying the allowances to those households whose income exceeds three times the average salary, i.e. more than €5,850 per month.

The center's calculations show the number of beneficiaries would be reduced by 2,195 households or 8 percent. State expenses would decrease by €12 million and revenues by €1.9 million.

"This change would have a negative impact on households with higher incomes; however, the changes in inequality and poverty would be small," said Koppel.

The think tank noted that such changes in the family allowances should not be made hastily, as there is no reliable data on households in Estonia. At the same time, family allowances would be better targeted based on the income level of the household, not the individual.

Last year, 42,400 people received unemployment benefits, totaling €45.4 million, and unemployment insurance benefits amounted to €118.6 million.

The report reveals that stopping uniform unemployment benefits and directing people at risk of poverty to apply for subsistence benefits would save the state €56 million.

However, if, alongside this change, the payments of subsistence benefits were automated, by determining eligibility for the benefit based on the data, all the saved money would be spent and there would be additional expenses in the amount of nearly €49 million.

This shows that the current subsistence benefit only reaches about a third of its target group, as the application process is complicated and people do not know what the subsistence level is or whether or in what amount they would be eligible.

The study and short report, based on a study by Civitta and Praxis, are part of the center's research stream 'The Future of the Personalised State', which aims to find out the possibilities of data-based personalization in services and benefits in the social and educational sector and to create alternative scenarios. 

The Foresight Center is a think tank at the Riigikogu that analyzes socio-economic trends and builds future scenarios. It researches different topics to anticipate emerging trends and potential disruptions.

--

Follow ERR News on Facebook and Twitter and never miss an update!