State should help only the poor

The talks on the necessity of fundamental changes in the system of social benefits and social security have been held for over 10 years in Ukraine, but it has all been in vain. Apparently, to take away some people’s privileges and monthly payments, albeit small ones, is an extremely unpopular measure for any government.

Moreover, we are living in the period between the elections, and according to Ukraine’s Minister of Labor and Social Policy Liudmyla Denysova, “Today the state is supporting half of all the families.” This is an entire system of benefits, subsidies and various kinds of government support: for example, the 2009 budgetary expenditures for child care assistance and welfare for underprivileged families and handicapped people were increased by 22.5 percent (15.9 billion hryvnias).

Furthermore, this year on top of all the benefits carried over from 2008 four new programs of social support have been launched. These include, in particular, doubling the aid given to children in custody and the 50-percent increase of the maximum aid provided to underprivileged families who take care of a child until age three.

The child care aid is given to all the families who need it (according to sociological studies, a family into which a baby has been born has drastically higher chances to find itself in the underprivileged category). State benefits and subsidies are a different story. According to some expert data, Ukraine has over 300 kinds of benefits, and nothing of this kind exists in any European country (except for Belarus and Russia that have similar problems).

At the same time, experts emphasize that often it is not the poorest people who enjoy these benefits, but vice versa, the better educated and wealthier ones, who are knowledgeable in legislation and ways to cheat it. The state’s economy suffers losses because of this unscrupulous approach.

As the Ministry of Labor admitted, the system of social support is being reformed at the moment: for example, they try to estimate citizens’ income levels in a new way (taking into consideration also their expenses). But it is not so simple to cancel any benefit or any kind of social aid. The only thing that has been done in 2009 is that the unemployed who are not registered in an employment center and are not studying will not receive social aid anymore.

Liudmyla CHERENKO, who holds a Ph. D in Economy and heads the Department for Living Standard Research at the Institute of Demography and Social Research, explains what the strategy of reforming the welfare system, in particular the system of benefits, should be.

How would you characterize the system of social benefits that exists in our country? Why don’t frequent talks on reforms lead to any significant results?

“The system of benefits and the system of state-run social security are different things. The first one existed in Soviet times in a form of privileges (a person could get something extraordinarily or free of charge, etc.).

“In the early 1990s, when crisis processes started to take shape and embraced entire strata of the population, like retired people, the benefits started to broaden. Now there are plenty of benefit categories: half of all households have a recipient of benefits who has the right to at least one benefit. This refers to the utilities, transportation, telephone, medical drugs, prosthetics, etc. This is a whole range of benefit services.

“The problem is that we have long ago overcome the situation when concrete categories of people are vulnerable. Now even pensioners are different, so there is no need for all of them to use transport free of charge.

“Now the thing is that different categories, like Chornobyl victims, have different needs and require different degrees of compensation from the government. This system has become outdated: we cannot speak about any efficiency. The talks on its reforming have been held since the 1990s; there were numerous decisions, but that was it.

“We have a unique system of benefits, comparable to those of Russia and Belarus, where the situation is the same. In general, its existence is illogical. The problem is aggravated by the fact that nobody in the state knows how many benefits are provided at the moment.”

Why?

“Because absolutely everyone is interested in the existence of this system of benefits. On the one hand, it is the population, because the recipients of benefits include fairly wealthy people. Housing departments have as much interest in these services, too. They are very happy when another recipient of benefits comes to them, because there is a system of mutual compensation between those who provide services [housing departments in this case] and the state budget: the former say that they will provide services worth a certain sum and they will receive at least partial compensation. In practice this is impossible to check.

“Therefore, the system needs to be reformed if only to put in order the flow of finances. At the moment, when we know that the budget lacks money, one of the possible solutions is a step-by-step monetarization with due attention to Russia’s negative experience. It is not humane to freeze social benefits, because there are different categories of population: some do need them, while others have gotten accustomed to them.

“On the other hand, this may provoke a serious social response, especially on the eve of elections. Therefore, at the current stage it would be appropriate at least to require that in order to receive benefits a person has to present, very simply, a certificate verifying family income and the amount due in payment for housing services and the utilities. We need to take at least gradual steps so that the population will get used to the idea that the state can help only the poor, but not everyone. Also, service providers should get used to the fact that they cannot stop up their gaps with benefit services at the state’s expense.

“It is enough to say that the ratio of benefit recipients is higher among wealthy people than among the poor, because wealthy people are usually educated, knowledgeable about the benefits, and able to use them. Among them are many influential people, who may use their right to benefits, for example, free stay at a resort center or medical treatment. So it turns out that the money that goes toward covering benefits, works for the wealthy population.

“Regarding social losses, this system is not fair, and it aggravates the injustice established by the economic factors.”

But the Minister of Labor has created a register of benefit recipients.

“It means that every recipient of benefits should come and register. First, not everyone has come. There are registers, but they are not made publicly accessible. Several years ago the Committee of Chornobyl Victims decided not to register, because they thought that registration was the first stage on the way to abolish benefits, so they appealed to all Chornobyl victims not to register.

“There is another sort of thing: for example, I am a benefit recipient, so all the members of my family who live with me enjoy benefits in terms of housing services and the utilities. I can live alone or I can live with my family. It is difficult to find out how much money was in reality received as compensation. On the nationwide scale it is difficult to calculate this also in the economic sense, because nobody knows exactly the amount of services provided and how this was compensated by the state.”

Is the situation somewhat simpler and clearer with the social security system?

“This is another thing: it is more or less regulated and is gradually improving, although, of course, it is far from perfection. This system consists of two kinds of targeted aid: low-income families (financial aid to the poorest ones, having a very low threshold of additional payment—approximately one-third of the subsistence wage) and subsidies for housing services and the utilities (in the form of compensations for consumed services and fuel). This targeted aid is provided on the basis of an income certificate based on the actual income of the family. Here the number of recipients is not very large.”

The Minister of Labor and Social Policy Liudmyla Denysova recently said that the state continues to help half of all families. Isn’t this too large a burden for the state?

“She meant both benefits and social security. There is a very low threshold for the aid provided to the low-income families: not more than two percent may claim it. Concerning housing subsidies, the contingent has increased due to the increase of tariffs. In 2006 it was less than one percent of families, but now this figure will possibly increase to three percent.

“Families with children receive an entire package of payments. There is also separate social aid to physically handicapped children and those handicapped from birth.”

Are they fair? Aren’t the wealthy again taking advantage of them?

“The targeted kinds of aid are fair, although there are problems with the program of housing subsidies. I will only say that we need to improve this system and make it meet the needs of the disadvantaged population, because the payment of housing subsidies for the most part depends on the dwelling that a family possesses: the larger the accommodation, the more chances to receive a subsidy, which is already unfair.

“For example, Slovakia has a fixed housing subsidy: if a family proves that it is disadvantaged, it will be given a certain sum for a month and may do anything it likes with this money, rent a house in the countryside, maintain an apartment in a city center—it’s their choice. We have a situation when the better apartment you have, the more subsidies you receive from the state.

“Social aid to underprivileged families is the most progressive one at the moment. The only thing is that it is unknown what it would be if its threshold is raised, because in this case we would have to monitor more closely the family’s real income (what is declared by the family and the real income are not always the same).

“As for the system of aid to families with children, it is paid according to categories (for example, if a child is born, or there is a child aged under three in the family, etc.). The only thing is that there is differentiation between the payments: the minimum one, and the one that can be provided if an income certificate is presented.

“There is the so-called Anglo-Saxon approach to social aid: all payments should be targeted. This approach is used, for example, by Poland. I mean that targeted aid is provided to all those who need it, people with the lowest income. Different countries may have varying conditions (for example, obligatory employment of all able-bodied family members). The countries of Western Europe have always been following a somewhat different path: they believe that aid should be provided according to categories.

“I can say that targeted aid is a more progressive one, because we check the income levels, know that a family needs aid, and then provide it. Providing welfare payments according to categories means giving money to everybody who has come to get it. At first sight it is less progressive, but in Ukraine’s circumstances, when poverty risks for families with children are many times higher than the poverty risks for other categories, this system of welfare is probably more acceptable.

“For example, we do not need to waste money on checking family income: we know that when a family has a child aged under three, the mother does not have a job, and everyone lives on the father’s wages, there are many unexpected expenses. This family can be given aid without verification of their incomes (only one percent may not need aid in this category). However, aid to single mothers does not fully correspond to the current conditions, because there is much abuse there: people often use it without any grounds.

“So, as a conclusion, I will say that we need to immediately reform the system of benefits, because it does not correspond the conditions for development, especially in the situation when the state does not have any money to cover these financial expenditures.”

The Day's FACT FILE

The lawyers representing the Center for Civil Legal Practice (Lviv) prepared and launched the Catalogue of Benefits listing 611 various benefits for different categories of the Ukrainian population. They said that the list is not exhaustive. According to their data, nearly 50 acts regulate the right to benefits, and according to the Unitary State Automatized Registration of People having the right to benefits (YeDARP), nearly 13 million Ukrainians enjoy this right. This makes nearly 43 percent of the population, and the overall amount of annually provided benefits costs over 29 billion hryvnias, which is equal to the annual expenditures of all local budgets in Ukraine.