BABIĆ_stream 4.

Zdenko BabićFaculty of Law, University of ZagrebNazorova 51, 10000 Zagreb, Croatiazbabic@pravo.hr

Effectiveness of social assistance and minimum income schemes in Croatia and Slovenia as a poverty alleviation tool: a comparative view

Abstract:

Research results in Croatia show that the system of social transfers contributes to both poverty and economic inequality reduction. Without social transfers, the poverty rate in Croatia would have been 25.5 %; when social transfers are included in income in 2009, the poverty rate drops to 18%. Social assistance is the best-rated type of social transfer, using the criteria of targeting and possible poverty reduction impact. According to the conducted research, 70% of the total social assistance transfers in 2008 were directed toward the lowest income quintile but only 12% of the poorest fifth were receiving social assistance. However, effects on the reduction of poverty rates are limited due to the low coverage rate and low levels of social assistance benefits. The at-risk-of-poverty rate in 2009 was 18%, but only 2.1% of individuals were social assistance beneficiaries in Croatia. Economic recession in 2009 contributed to increases in the poverty rate, which passed 20 percent for the first time in 2010.

The main hypothesis of the paper is that relatively high efficiency in the social assistance system in Croatia (targeting social assistance towards those mostly in need) is combined with low effectiveness of social assistance, resulting in inadequate poverty alleviation effects. Comparative analysis is used to compare at-risk-of-poverty rate dynamics, social assistance systems and benefit levels in Croatia and Slovenia. Measures such as adequacy rate (social assistance benefit as a percentage of the poverty line), coverage rate (share of social assistance beneficiaries in at-risk-of-poverty rate population), and spending on social assistance as a GDP share are used to compare the ‘poverty protection effort’ in Croatia and Slovenia. Indicators of economic development are also included to establish whether the Slovenian lower at-risk-of-poverty rate stems from higher level of economic development, from higher ‘protection effort’ and higher benefit levels or from higher effectiveness of the minimum income scheme in Slovenia. The paper ends with concluding remarks and policy implications.

Introduction

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Croatia became an independent Country in 1991. Until 1991, Croatia together with Slovenia

were part of a socialist-governed ex-Yugoslav state. The socialist system and ideology

formally did not allow great disparity between rich and poor. But equality in real life was

achieved through the relatively low standard of life for ordinary citizens and on the other hand

relative ‘luxury’ for senior functionaries of the ruling Communist Party. They lived in towns

in pleasant, state-owned apartments and earned relatively high salaries. The poor generally

lived in underdeveloped rural areas of the country, were poorly educated, and politically

inactive.

During the 1990s Croatia and Slovenia wanted to become independent countries gaining

legitimacy and confirmation from their citizens through positive referendum results about

independence in both countries1. But, on the other side the ex-Yugoslav army and some

Serbian hegemonic forces were not ‘happy’ with the ‘dissolution’ of the ex-Yugoslav state

and Croatia and Slovenia were faced with war aggression. Slovenia, the most developed part

of ex-Yugoslavia dissolved from the Yugoslav regime more easily than Croatia and with

much lower war damages. Namely, the war in Slovenia was much shorter and lasted from 27

June 1991 until 7 July 1991, when the Brijuni Accords were signed. Croatia on the other hand

had to fight for independence and war lasted almost four years with many human losses and

huge war damages in economy, property and infrastructure followed by a general process of

impoverishment that affected the majority of its population in that time. Croatian social

programs and actions at that time were concentrated primarily on groups affected by war,

especially refugees. Croatia at that time had a 'refugee crisis'2 with a high number of displaced

persons and those disabled in the war. On the other hand reparation and reconstruction

programs caused by huge war damages and post- war social programs aimed at war veterans

(Zrinščak and Stubbs 2009; 128) had a substantial influence on the post-war Croatian social

policy framework.

In socialist time poverty was neglected in both countries. That is the main reason why there

was no representative poverty research after World War II until 2000 in Croatia. In Croatia

the World Bank office in 2000 (World Bank, 2000) has published the first serious poverty

study based on household budget survey data from 1998. The poverty line from that study

was calculated using an ‘absolute’ poverty line methodology and was accepted as the national 1 In Slovenia referendum was in December 1990 and 88% of voters voted for independence; in Croatia referendum was in May 1991 and 93,2% voters vote for independency. 2 With more than 800.000 refugees and displaced person within the country in 1992.

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poverty line at that time. According to that study, around 10% of Croatia’s citizens were

living below the absolute poverty threshold in 1998, meaning that they were unable to meet

their basic needs. From 2001, the Croatian Bureau of Statistics started to monitor, calculate

and publish poverty statistics using Eurostat relative poverty line methodology based on

household budget survey data. Relative poverty rate risks from 2001 till 2009 oscillated

between 16 and 18 percent. In 2010 poverty statistics data for the first time in Croatia were

collected in line with Eurostat's methodology for the EU-SILC survey .After strong recession

in 2009 with -6% GDP fall the at risk of poverty rate exceed 20 percent in Croatia.

On the other hand, in Slovenia, poverty monitoring started somewhat earlier than in Croatia

and according to Kavar Vidmar (2000), the Slovenian Statistical Office started to monitor

poverty using the Eurostat relative poverty methodology in 1993 with a poverty rate of 13.6%

which placed Slovenia among the European countries with a lower level of poverty at that

time. Scientific research regarding poverty started also earlier in Slovenia than in Croatia

especially subjective poverty research which has been made by the Centre for Public Opinion

at the Faculty of Social Sciences University of Ljubljana from 1970s., while poverty

alleviation research became an important topic in Croatia only in the last decade.

Central focus of the paper is to determine which factors explain significantly and continuously

lower at risk of poverty rates in Slovenia than in Croatia in last decade. To answer that

question comparative methodology will be used and different comparative indicators are

calculated and presented in the paper. In the first part of the text poverty and economic

inequality trends in Slovenia and Croatia are presented while the connection between poverty

and economic inequality is discussed as significant. The next section provide analyses of

social transfers and their impact on poverty alleviation in Slovenia and Croatia concluding

how important is the effectiveness of the social transfer system for both poverty incidence and

poverty alleviation. The third section compares the social assistance system in Croatia and the

minimum income scheme in Slovenia, describing eligibility conditions and benefit levels,

calculating adequacy and coverage rates, giving an insight into why Slovenia had significantly

and continuously lower at-risk-of-poverty rates than Croatia. The text ends with some

concluding remarks which summarize the most important results of the research and policy

implications.

1. At risk of poverty rates and inequality trends in Croatia and Slovenia

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In 1993 the Statistical Office in Slovenia organized the first poverty monitoring in Slovenia.

The study was based on data from the Household Budget Survey. The poverty threshold was

defined as 50% of average equivalent expenditure. To calculate equivalent expenditure, the

modified OECD scale was used3. According to this methodology, the at risk of poverty rate

was 13.6% in 1993. In the following years, until 1997, poverty rates were not calculated in

Slovenia. The at risk of poverty rate in Slovenia was calculated for the second time only for

the 1997/98 period and was 11.2%. From 2000 onwards it is possible in the Eurostat data

base to follow poverty statistics in Slovenia continuously. Data are presented in table 1. From

the data presented in table 1 at risk of poverty rates in Slovenia calculated in line with relative

Eurostat methodology with 60% of median income as a poverty threshold in the last decade

oscillated between 10 % and 12.7% in 2010. Even though poverty rates somewhat increased

during last decade in Slovenia, in European context Slovenia is continuously among countries

with lower at risk poverty rates statistics. The data about economic inequality also suggest

that Slovenia belong to group of European countries with lower economic inequality with

Gini coefficient below 24 and quintile ratio 3.4 in 2010.

Compared to 2009, in 2010 the at-risk-of-poverty rate increased from 11.3% to 12.7%.

The annual at-risk-of-poverty threshold in 2010 and for one-member household was set at

EUR 7,042 what means that the at-risk-of-poverty threshold was thus below EUR 587 per

equivalised adult person monthly and for a four-member family (with two adults and two

children younger than 14) poverty threshold was EUR 1,232 of disposable net monthly

income. According to the Slovenian statistical office the at-risk-of-poverty rate data show

that households without working members were in the worst position (poverty rate 40.1%),

especially the ones with dependent children (74.8%). According to household type, one-

member households (38.5%) were the most vulnerable, followed with one-parent households

(31.4%) and couples with three or more children (13.6%). According activity status at risk of

poverty rate for the unemployed was the highest (44.1%) following with retired persons

(18.3%). Women older than 64 years (27.1%) and tenants (27.6%) also had high poverty

rates. The lowest at-risk-of-poverty rate was registered in work intensive households in which

all adult household members were employed (3.5%) and for persons in work (5.3%). In 2010

the material deprivation rate for people who cannot afford at least three of the nine

3 (first adult person in a household has the weight 1.0,other adults 0.5 and children under 14 years of age 0.3).

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deprivation items was 15.8%, i.e. 41.9% of people below the at-risk-of-poverty threshold and

12.0% of people above the at-risk-of-poverty threshold were materially deprived.

Table 1. At risk of poverty rates and economic inequalities in Slovenia and CroatiaTrends in Slovenia

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Poverty rates in SLO 11 11 10 10 n.a 12.2 11.6 11.5 12.3 11.3 12.7S80/S20 ratio SLO

3.2 3.1 3.1 3.1 n.a 3.4 3.4 3.3 3.4 3.2 3.4

Gini coefficient SLO

22 22 22 22 n.a 23.8 23.7 23.2 23.4 22.7 23.8

Trends in Croatia

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Poverty rates n.a n.a n.a 18 18 18 17 18 17.3 17.9 20.5S80/S20 ratio n.a n.a n.a

4.6 4.8 4.7 4.4 4.5 4.5 4.3 5.6

Gini coefficient n.a n.a n.a

29 30 30 28 29 28 27 31.5

Source: Eurostat.

Croatian poverty and inequality statistics also presented in table 1, on the other hand placed

Croatia in European group of countries with higher at risk of poverty rates. At risk of poverty

rates in Croatia from 2003 to 2010 oscillated between 18% and 20,5%, only Latvia with

21,3%, Romania 21,1%, Bulgaria and Spain with 20,7% had a higher at risk of poverty rate in

2010 than Croatia. According to the income definition, which includes cash earnings

and benefits in kind, the at-risk-of-poverty rate in Republic of Croatia in 2010 was 20.5%.

The at-risk-of-poverty threshold at the annual level in 2010 was around 3462 Euro annually

or 288 net Euro monthly for a one-person household; and to 7269 Euro annually or 605 Euro

monthly for a household consisting of two adults and two children

The at-risk-of-poverty rate in Croatia was the highest in 2010 for persons aged 65 years and

over and amounted to 28.1%, especially high poverty risks was for one-person households

aged over 65 with poverty rate risks in 2010 amounting to 50.2%. Within the category of

households with dependent children, the highest at-risk-of-poverty rate was recorded for the

single parent households: 34.6%, and for households with two adults and with three and more

children 33.1%. Especially endangered were households with dependent children without

employed members with 77.7% at risk poverty rate. Previous research about poverty in

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Croatia also showed that poverty rates significantly differ across regions in Croatia and that in

rural areas at risk of poverty rates are three times higher on average than in urban areas

(Nestić and Vecchi, 2006). The material deprivation rate in 2010 for the Republic of Croatia

was 32.2% what was two times higher than in Slovenia in same year. For persons with the

equivalised income below the at-risk-of poverty threshold, the material deprivation rate was

57.2%, while for persons who are not at risk of poverty it was 25.7%.

From inequality statistics presented in table 1 it can be concluded that Croatian society is

faced with higher economic inequalities than Slovenian society. Eurostat methodology for

poverty measuring as some researcher already noted (see Nelson, 2012) is very sensitive to

economic inequalities with a strong correlation between poverty and economic inequality,

which induces the introduction of monitoring material deprivation in EU context. For this

research from the above presented data an important conclusion which could be drawn is that

significantly higher at risk poverty rate in Croatia comparing with Slovenia’s can be partially

explained by continuously higher economic inequalities in Croatia. On the other hand it is

very hard to measure which part of those higher at risk poverty rates in Croatia ‘hide’ behind

continuously higher registered economic inequalities and which part is coming from other

sources like different effectiveness of anti-poverty programmes such as social transfers or

better design of social assistance schemes. The next section will try to identify the

aforementioned sources of poverty differences in Croatia and Slovenia.

2. Social transfers in Slovenia and Croatia and their impact on poverty

The previous section showed that Slovenia had significantly lower at risk of poverty rate than

Croatia due to continuously lower registered economic inequalities in last ten years. That fact

is just one part of the explanation why Croatia continuously registered significantly higher at

risk of poverty rate than Slovenia. To get a better picture it is important also to analyse

factors such as effectiveness in the social transfer system, social assistance and minimum

income system and their impact on the at risk of poverty rate in both countries.

Aforementioned indicators for Slovenia and Croatia will be presented in the following part of

the text in order to investigate whether the level and effectiveness of social transfers in

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general and especially social assistance system could be ‘blamed’ too for significantly higher

at risk of poverty rate in Croatia comparing with Slovenian data. For impact on poverty

alleviation it is often used pre- and post- social transfer at risk poverty rate, these data are

available for both countries in the Eurostat data base and are presented in table below. Data

presented in table 2 suggest that for instance at risk of poverty rates before social transfers in

2005 and 2006 were very close in Slovenia and Croatia, but post transfer at risk poverty rates

differ significantly due to the impact of social transfers which are clearly more effective in

poverty alleviation in Slovenia. Social transfers in Slovenia were more effective in poverty

alleviation than the Croatian system of social transfers in the last five years as data in table 2

suggest.

Table 2. At risk poverty rate in Slovenia and Croatia before and after social transfers

Year 2005 2006 2007 2008 2009 2010Poverty ratesbefore social transfers in SLO % 25.9 24.2 23.1 23.0 22.0 24.2Poverty ratesafter social transfers in SLO% 12.2 11.6 11.5 12.3 11.3 12.7Poverty rates alleviation effect in SLO %

13.7 12.6 11.6 10.7 10.7 11.5

Poverty ratesbefore social transfers in CRO% 26 25 25 25.3 25.5 30.2Poverty ratesafter social transfers in CRO% 18 17 18 17.3 17.9 20.5Poverty rates alleviation effect in CRO%

8 8 7 8 7.6 9.7

Source: Eurostat database.

The efficiency of social transfers has been an important topic in Slovenian research and policy

making (Stanovnik and Stropnik 1998, Stropnik and Stanovnik 2002, Kump and Stropnik

2009, Stropnik 2010). On the other hand social transfers and their impact on economic

inequality and poverty in Croatia is a relatively new and rare ‘topic’ among researchers and

policy makers. First research about impact of social transfers on poverty in Croatia was done

by Šućur (Šućur, 2005) and he found that the total system of social transfers was not less

effective than the European average for that time. However, on the other hand, the

aforementioned research (Šućur, 2005) showed that the poverty rate reduction due to old age

and survivor pensions was one of the lowest in EU countries. The next research was made by

Babić (Babić, 2008) and showed that the Croatian system of social transfers is contributing to

both poverty and economic inequality reduction but the efficiency of the system was below

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the European average at that time. On the other hand research from Slovenia showed that

efficient targeting and relatively high level of benefits redistribute income significantly and

decrease poverty and income inequality in Slovenia (Kump and Stropnik 2009). Stropnik

(Stropnik 2010) showed that social transfers in Slovenia are effective and in a European

context among the best performers in alleviating child poverty. A relatively new comparative

study about income redistribution through taxes and benefits in Slovenia and Croatia (Čok,

Urban and Verbič, 2012) using household budget survey data for Croatia and administrative

data from the Statistical office for Slovenia also found that Croatia experienced significantly

higher pre-fiscal income inequality and achieved lower redistributive effect from their social

transfer system than Slovenia.

Presented data and research results imply that the effectiveness of the social transfer system is

the second important explanatory variable as to why at risk poverty rates in Croatia were/are

continuously higher than Slovenian ones. Namely, it is obvious from the data presented in

table 2 and research results that the social transfer system in Slovenia redistributes more and

is more effective in poverty alleviation than in Croatia. The next logical question is which

factors lie behind the fact that the Slovenian social transfer system is more effective in

poverty alleviation than the Croatian one. This question will be partially tackled in the next

section in which the minimum income scheme in Slovenia and the social assistance system in

Croatia, instruments which are mainly directed towards the poor, are compared with the aim

to discover which of the systems is better in poverty alleviation. Namely, research findings

suggest that vertical redistribution is connected with level of total social transfers but also

with compositions of the social transfer system where social assistance and means tested

benefits include much stronger elements of vertical redistribution (Nelson, 2012).

3. Comparison of minimum income and social assistance in Slovenia and Croatia

One of the main social policy instruments for ‘living standard’ protection of the poor in EU

countries are social assistance schemes or minimum income schemes. The European

Parliament (2009) stated that adequate minimum incomes should reach at least the at-risk-of

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poverty threshold agreed by the EU Member States. In practice, social assistance does not

reach this level in any EU country and very often in EU Member States benefit adequacy vary

between 20 and 40 percent (Van Mechelen et all., 2011). On the other hand European Union

at the European Council 2010 lunched new European Strategy ‘Europe 2020’ and set a very

ambitious goal regarding social inclusion - lifting at least 20 million people out of risk of

poverty and social exclusion till 2020. Progress towards aforementioned poverty reduction

goal is mesaured using three main indicators (at-risk-of poverty; material deprivation; and

jobless household), using data from EU-SILC. Member States are free to set their national

targets. Slovenia as an EU Member State is already 'obliged' to work on aforementioned aim

but Croatia also as a candidate country and next year when Croatia become full member of

the European Union obligation will become even stronger. Croatia as a member state should

also positively contribute to common European reducing poverty target decreasing poverty

rates and promoting social inclusionof the poor in Croatia. But as aforemenioned research

(Van Mechelen et all., 2011) stated in a concluding part it will be very hard to achieve this

ambitious EU goal regarding poverty reduction till 2020 if net incomes of minimum income

recipients or adequacy rate are significantly distanced from the EU’s at risk of poverty

threshold in most of the EU countries what is also true for Slovenia and Croatia too.

3. 1 Minimum income scheme and social assistance in Slovenia

Social Assistance and Services Act (1992) in Slovenia was changed in 2002 when the

minimum income was introduced in Slovenia as a base for social assistance. In 2008 the

basic minimum income amounts to 221,70 EUR. The last changes in Slovenia in 2010 with

the new Social Assistance Benefits Act (2010) increased the amount of the minimum income

and introduce new equivalence scales for social assistance beneficiaries. From January 2012

minimum income in Slovenia increased to 288. EUR monthly ( 25% increase).

Minimum income is set in Slovenia as the ceiling amount for cash benefits. The persons who

are eligible to cash social assistance are those that do not have any income or receive income

below a defined minimum income. In the case of no income, the eligible persons receive the

full stated amount of minimum income; otherwise, they are entitled to receive the difference

between their income and the above stated amount. Minimum income is defined by law in

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Slovenia and is not based on scientific or analytical research about minimum cost of living.

(Leskošek and Trbanc, 2009). Minimum income scheme in Slovenia is managed from central

government and financed from the central budget through general taxation.

Eligibility criteria for minimum income protection in Slovenia are Slovenian citizenship and

residency, means test which include income and property test and for unemployed able to

work indivduals also the condition of activation. Activation policy in practice means that

individuals capable of work have to actively seek work and must be registered with the

Employment Service of Slovenia and participate in offered programmes of active employment

policy (Leskošek and Trbanc, 2009). Recarding the income test all kinds of income and

receipts received at home or abroad are counted in family income, except: attendance

alowance or other receipts for care and assistance, birth grant, reimbursement of travel

expenses to and from work, and reimbursement of expenses for meal at work.

From the last changes in the Social Assistance Benefits Act (2010) (when minimum income

significantly increased from 230 to 288 Euro) child allowance enters into the income test and

a new innovation was the prescribed order for benefits application. Namely, according to

Stropnik (Stropnik, 2011) in Slovenia due to relatively low wages accumulation of benefits

caused work disincentives especially for social assistance beneficiaries with families with

more children (that problem exist also in Croatia due to lower wages to an even higher

extent). According to the old regulation child allowance was excluded from income which

caused accumulation of benefits (child allowance+social assistance) and work disincentives

for social assistance and child allowance beneficiaries. For instance in Slovenia the minimum

wage was set 734 EUR gross per month in 2010 or 562 EUR net monthly which was very

close to the at risk poverty rate threshold in 2010 EUR which was 587 EUR per equivalised

adult person. After minimum income was increased to 288 EUR families with two or more

children which recieved social asistance benefits for all members plus child alowance would

easily exceed the minimum wage.

That is the argument why new regulation from 2010 in Slovenia introduces uniform rules and

procedures for the allocation of benefits and rules to avoid potential accumulation or

exclusion of benefits through The Exercise of Rights to Public Funds Act (2010) which

regulates cash benefits. The order in which beneficiaries have to apply for cash benefits is

defined according Stropnik (Stropnik 2011): child allowance first, followed by social

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assistance, pension support and state educational grant. These changes with some changes in

equivalence scales which introduce higher weight for part-time employment (0.28 for those

worked 60-128 hours per month and 0.56 for those worked more than 128 hours per month)

were introduced with the aim to increase work incentives among social assistance

beneficiaries in Slovenia. Social assistance beneficiaries according to the new regulation are

divided into two groups – employable and unemployable beneficiaries. Employable

beneficiaries after application and means test had a right to temporary social assistance; on the

other hand unemployable (ie those not capable of work) beneficiaries after receiving social

assistance had permanent social assistance.

It is obvious from the presented data that adeqacy rate of social assistance with last changes

in minimum income in Slovenia has increased and will be around 50% (288 EUR MI/587

EUR poverty threshold *100) which is still beyond the proposition of EU parlament, but

much better than in the Croatian case which is discussed below.

3.2 Social assistance system in Croatia

Permanent allowance (social assistance) in Croatia is a social programme of general social

welfare, aimed at those citizens whose income is below a certain minimum income threshold,

and its purpose is to guarantee the fulfilment of basic needs. The base that determines the

amount of permanent allowance (social assistance) in Croatia according the last Social

Welfare Act from 2011 is relative poverty line. Precisely, according to aforementioned Law

the base for social assistance benefits was set as 22.5% of amount of the relative poverty line

for a single household as published by the Croatian Central Bureau of Statistics. The

conditions for granting social assistance benefits is determined on the basis of the income of

the beneficiary and family members who live in the same household, and on the basis of

property owned by the applicant and family members who live in the same household. These

conditions are checked in process of means-testing and for individuals capable of work a

condition of activation is prescribed which means that these individuals have to actively seek

work and must be registered within the Croatian Employment Service. Social assistance

applications are managed through local Centres for social welfare but eligibility criteria and

monetary amounts are centrally defined and financed from the central budget. After approval

social assistance benefits is a permanent right until the social condition of beneficiaries

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change (employment, earnings above defined level etc). So, in Croatia, there is no division

like in Slovenia between those individuals capable of work who received temporary social

assistance right and unemployable beneficiaries with permanent right, all social assistance

beneficiaries in Croatia are approved permanent social assistance till changing social or some

else condition defined by the Law ( for instance condition of activation for workable

beneficiaries).

Considering the rather high share of unemployed in the total number of assistance

beneficiaries (around 44%), the new Social Welfare Act foresees the incentive measures for

their working and social integration. Workable person who receives a (social assistance) has

the right and obligation to participate in activities that enable their social inclusion.

Professional workers of the Employment Service shall determine an action plan for social

inclusion. The Centre for social welfare in a case of unjustified non-fulfilment of obligations

stipulated by Employment Service could reduce or even terminate social assistance benefits in

such a situation.

In Table 3 data about social assistance beneficiaries in Croatia from 2006 till 2012 are

presented. The number of beneficiaries declined from 2006-2008, a periods of prosperous

economic growth, then increased slightly in 2009 and significantly in 2012 due to the strong

recession that hit Croatia in 2009 with -5.8% GDP fall and economic stagnation in 2010 and

2011. Social assistance beneficiaries increased due to recession by 1.9 percent in 2009 but a

significant increase appeared in 2010, more than 8 percent. In 2009 recession year there was

no significant increase in the number of social assistance beneficiaries because the majority of

persons who left employment were using unemployment benefits, but in 2010 significant part

of the unemployed after their unemployment benefits right expired became eligible for social

assistance and the number of beneficiaries increased by more than 8 percent; in 2012 social

assistance beneficiares increased further around 4.5% compared to 2010.

Last available data on yearly base about social assistance beneficiaries are from 2010. Out of

the total number of social assistance beneficiaries there were 53% of male and 47% of female

beneficiaries, 43% of the beneficiaries were unemployed individuals capable of work while

66% of them have completed only elementary school education or less what negatively

influenced their chances for labour market integration, the returnees and the refugees

accounted for 3.4% of all beneficiaries. Similarly in 2009, 78% of beneficiaries have been

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receiving assistance for more than one year which could suggest that poverty in Croatia

among poor is more probably persistent and not short-term ‘situation’. It should also be

pointed out that around 56% of beneficiaries live in families with children.

Table 3.Social Assistance Beneficiaries, Croatia

2006 2007 2008 2009 2010 2012

Individuals

and Families

49,960 46,720 42,541 43.346 46.246 47.095

Total persons 112,508 102,953 92,819 94.849 102.668 106.726

At risk

poverty rates

16,3 17,4 17,4 18,0 20.5 n.a

Source: Croatian Ministry for Social Policy and Youth, 2006-2010 annual averages, 2012 – May last available

data.

3.3 Comparison of social assistance and minimum income adequacy and coverage rate

A number of research papers in Croatia stated that protection of the poor population in Croatia

is rather low due to a) low level of the transfers aimed directly for the poor (World Bank

2007 and 2009 ) and b) lower efficiency in social transfer system (Babić, 2008). One way to

get an insight how the poor are protected in Croatia is to compare the level of protection of

the poor in Croatia with the protection of the poor in other countries in this case with

Slovenia. On the basis of the indicators presented in the table 4, it can be concluded that

Croatia has had a significantly lower coverage rate of the poor with its social assistance

scheme than Slovenia, 11.3 percent of the people under the at risk poverty rate threshold in

Croatia were receiving social assistance benefits in 2010 comparing with the much higher

18.7 percent in Slovenia. The Croatian position is even worse regarding the adequacy level of

social assistance benefits. The European Parliament (2009) stated that adequate minimum

incomes should reach at least the at-risk-of poverty threshold agreed by the EU Member

States. It is evident from the data and indicators presented in the table 4 that the Croatian

system of the poor population protection is lagging behind Slovenian minimum income and

also European Parliament ‘benchmarks’. Namely as indicators in table suggest Croatian

social assistance benefits with 20 percent of adequacy rate is significantly lagging behind

comparing with around 40 percent adequacy rate of minimum income in Slovenia.

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On the other hand many research showed that social assistance in Croatia is a well-targeted

transfer towards the poor, but the level of allowance is low (World Bank, 2007, Babić, 2008;

World Bank 2009). According to Babić (2008) and World Bank (2009) the best-rated

transfers regarding their contribution to poverty reduction were social assistance, family

pensions and child allowance. For instance 70% of the total social assistance transfer in 2008

was directed to the lowest income quintile but only 12% of the poorest fifth were receiving

social assistance while coverage rate is low and the monthly amount is low also (table 4). Due

to low level of social assistance and the low coverage rate of the poor receiving social

assistance (table 4) positive effects in terms of decreasing poverty rates were not achieved,

contrary to that poverty rates in Croatia are relatively high and stable (table1).

Table 4. Coverage and adequacy rate of social assistance in Croatia and Slovenia.Total

population

At risk

poverty

rate

Total

number of

the poor

(1x2)

Number of the

poor covered by

social assistance

coverage rate in

(%) *

(4/3*100)

Social

assistance

average

monthly

level paid

in EURO

At risk

poverty rate

threshold for

one member

household

Adequacy

rate in %

(social

assistance

/poverty

threshold *100)

(5/6 *100)

1 2 3 4 5 6 7

Croatia

2007

4 435 982 17.4 771 860 102 953

(13.3%)

51 263 19.4

Croatia

2010

4 417 781 20.5 905 645 102 668

(11.3%)

58 288 20.1

Slovenia

2007

2 025 866 11.5 232 974 43 600

(18.7%)

204 495 41.2

Slovenia

2010

2 046 576 12.7 259 915 48 700

(18.7%)

226 587 38.5

Sources: Statistical offices of Croatia and Slovenia, Croatian Ministry for Social Policy and Youth data base,

Slovenia Ministry of Labour, Family and Social Affairs * coverage rate poor covered by social assistance as a % in total

number of the poor

3.4 Comparison of poor protection effort in Croatia and Slovenia

Poor protection effort between different countries could be approximate with different

variables such as social protection expenditure share in GDP, total social transfer share or

only means tested benefits share in GDP or only social assistance share of GDP. For

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comparing Slovenia and Croatia social protection expenditure and means tested social

benefits (child allowance and social assistance) expenditure in GDP will be compared. Social

protection expenditure could be used to describe broader social policy context while means

tested social transfers (child allowance and social assistance as most important means tested

benefits in Croatian and Slovenian case) share in GDP are a better ‘proxy’ for poor protection

effort while as stated above means tested benefits are important for vertical redistribution.

World bank research in 2009 (World bank, 2009: pp 51and 52) showed that social assistance

and child allowance benefits in Croatia are the best poverty alleviation transfers meaning that

they are well directed towards the poor (quotation page 51) ‘the means tested programs are

well targeted in Croatia, their coverage is low' .

Social protection expenditure calculated by Esspros methodology are available only for

Slovenia in Eurostat database and from 2005 till 2009 social protection expenditure oscillated

between 23 and 24 percent of GDP in Slovenia. In Croatia social protection expenditure data

are collected through the Ministry of Finance using IMF –global financial statistics

methodology and last available data for 2009 (Babić, 2010) was 20,8 percent of social

protection expenditure in GDP. Slovenia in the last years had higher social protection

expenditure share in GDP, but for poverty alleviation more important is comparison of means

tested benefits which are presented in a table 5 below.

Expenditure on the two most important means tested benefits in Slovenia and Croatia (child

allowance and social assistance) are presented in table 5. It is obvious from the indicators in

table 5 that Slovenia in 2010 made a stronger ‘poor protection effort’ than Croatia while

Slovenia spent 1,1 percent of GDP on child allowance and social assistance means tested

programme compared with 0.7 percent in Croatia. These macro data also partially explain

why Croatia is lagging behind its neighbour Slovenia in poverty alleviation and why at risk

poverty rates in Croatia are significantly and continuously higher than in Slovenia.

Table 5. Comparison of child allowance and social assistance as means tested benefits in

Croatia and Slovenia

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Sources: Eurostat data base, Croatian Ministry of Finance and Ministry for Social Policy and Youth data base,

For Slovenia Ministry of Labour, Family and Social Affairs, Exchange rate for EUR/HRK yearly average from

Croatian National Bank data base.

Effectiveness of the Slovenian minimum income scheme is relatively higher in comparison

with social assistance system in Croatia due to higher benefits which resulted in higher

adequacy rates and in 2012 will be even enhanced. As noted above minimum income in

Slovenia in 2012 has been increased by 25% (and now is 288 Euro monthly) which means

that the Slovenian adequacy rate will be 50% comparing with Croatian 22.5% defined by the

last Social Welfare act regulation changes. In other words poor people in Slovenia after

receiving minimum income become much ‘closer to’ or even some were raised over the

poverty threshold while at the same time in Croatia most of the poor people after receiving

social assistance are still much below the at risk of poverty threshold. From the previous

research and data presented, it seems that the relatively high efficiency in the social assistance

system in Croatia produced a negative outcome in its effectiveness. The Croatian social

assistance system is efficient meaning that the social assistance went to those mostly in need,

but on the other hand, low coverage rate and low benefit levels were the main reasons why

social assistance could not contribute to alleviation of poverty in Croatia and that factor also

contributes to explanations of why at risk of poverty rates in Croatia are significantly and

continuously higher than in Slovenia.

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Croatia 2010 Slovenia 2010

Child allowance - total in

milion EUR and (%) of

GDP

240.4 (0.54) 289. 6 (0.82)

Social assistance total in

million EUR and (%) of

GDP

71.1 (0.16) 132.5 (0.37)

Child allowance + social

assistance % of GDP

0.7 1.1

GDP in million Euro (market

prices –Eurostat)

44 858 35 415

Concluding remarks

From the results presented in the text several concluding remarks could be made. It seems that

there are several factors explaining why at risk of poverty rates in Slovenia are continuously

and significantly lower than the same in Croatia. First of that factor are continuously (from

the middle of the nineties) and significantly lower economic inequalities in Slovenia than in

Croatia which influences relative at risk of poverty rate statistics. The second important

explanatory variable are the more effective social transfers in Slovenia which decreased and

alleviate poverty in Slovenia much more than the social transfer system in Croatia. The third

explanation for continuously lower at risk of poverty rates in Slovenia is higher effectiveness

of minimum income in Slovenia with higher adequacy rate meaning that after receiving

minimum income in Slovenia poor people become closer and some very close or raised up to

the at risk of poverty threshold, on the other hand social assistance in Croatia has a low

effectiveness due to low adequacy rate which means that poor people in Croatia even after

receiving social assistance benefits in average ‘stay’ more distanced from the poverty

threshold than their Slovenian fellows. Slovenian minimum income scheme provides also

better coverage rate for the people below the at risk of poverty threshold than the Croatian

system of social assistance which also contribute to better results in alleviation of poverty in

Slovenia than in Croatia.

Finally, changes in the regulatory framework in Croatia were a chance for substantial changes

of social assistance system to increase level and the adequacy rate, but it did not happen.

Instead of that the Social welfare act connected the base for social assistance with the poverty

threshold but using the old low defined level set a social assistance benefits base at 22.5% of

the amount of the relative poverty line. Aforementioned changes definitely will not result in

adequacy rate increase and without changes in that direction poverty alleviation results in

Croatia will be poor in the next years too. Research results (World Bank, 2009) showed that

only 0.5 % of Croatian GDP was needed in 2008 under the assumption of perfect targeting,

that ' all the poor could have been lifted out of poverty at the cost of approximately 0.5

percent of GDP ‘ (World Bank, 2009: p. 49) Second direction which is very important to

improve poverty alleviation in Croatia is connected with improvements in efficiency in social

transfers which should contribute more to economic inequalities reduction but also to at risk

poverty rates reduction. To achieve that aim means tested benefits should be enhanced while

above mentioned research showed that means tested benefits in Croatia are well directed

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towards the poor but their level is low. Enhance of means tested benefits should also

contribute to higher social transfer efficiency and improve poverty alleviation results. Finally

it could be concluded that more financial, human and organizational resources should be

directed towards the poor in Croatia in order to achieve better poverty alleviation results and

positively contribute to achieve ‘Europe 2020’ reducing poverty target.

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