The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National Accounts
Chapter

20 Sectorization of Social Security Funds

Author(s):
Vicente Galbis
Published Date:
September 1991
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Author(s)
Teresa Villacrés

To shed light on the merits of classifying social security funds separately or together with other parts of government, this paper examines several key characteristics of social security operations, drawing primarily on data in the Fund's Government Finance Statistics Yearbook (GFS Yearbook) and the U.S. Social Security Administration's Social Security Programs Around the World1 and on papers appearing in the International Social Security Review.2 The question of the appropriate classification of social security funds arises from differences between the United Nations' A System of National Accounts (SNA) and the IMF's Manual on Government Finance Statistics (GFSM). Although both data systems consider social security funds to be a part of general government and include social security schemes that are not separately organized as funds within the level of government at which they operate, the SNA treats social security funds as a separate subsector of government, and the GFS includes them in the level (subsector) of government at which they operate. Thus, the GFS calls for the inclusion of statistics for all national social security schemes with data for central government and the inclusion of data relating to all separate schemes operating at regional or local government levels with the statistics for regional or local governments, respectively. Social security funds, as distinguished from other social security schemes, are defined in the SNA (page 237) as “schemes imposed, controlled or financed by the public authorities for purposes of providing social security benefits for the community, or large sections of the community, which are separately organized from the other activities of the public authorities and hold their assets and liabilities separately from them.” The SNA's treatment of social security funds as a separate subsector, therefore, turns on their separate organization, separate finances, and, by implication, their relative independence as a decision-making center.

This paper focuses on the question of consolidating statistics for social security funds operating at the national level with those of other central government units, and the term “social security funds” is used throughout this paper to refer to national social security funds.

I. Social Security Funds' Financial Dependence on Central Government

Experience suggests that the financial independence of social security funds is not fixed but is rather a function of the risks they cover, their age, and the overall social, economic, and political context in which they operate. Several issues arise in the determination of whether social security funds should be treated as a separate subsector: whether they constitute independent decision-making institutions, whether such independence is limited by financial dependence on contractual or discretionary funds from budgetary central government, whether social security funds perform functions distinct and separate from those performed by the rest of the government, and whether the magnitude of their operations makes their inclusion or exclusion from data for total central government operations a major or minor concern. As social security funds have grown older and more complex in terms of benefits provided and segments of the population covered—for example, among industrial countries and in some developing countries in Latin America3—they have found it increasingly difficult to cover their expenditures with their own revenues and have become dependent on substantial financial support from central government. Some older social security funds have used pension reserves to meet the costs of sickness and maternity benefits, so that governments committed to ensuring payment of pension benefits when they mature have had to provide subsidies or levy special taxes for such purposes. Receipts of social security systems, furthermore, depend heavily on trends in wages and are therefore quite vulnerable to economic conditions, such as unemployment. Thus, the recession of the 1970s brought lower social security contributions, an increase in unemployment benefits, and inflation, which triggered sizable cost-of-living adjustments for some benefit programs. As a result, “since the mid-1960s, in most countries, social security has been overshadowed by increasingly serious economic difficulties.”4

A quantitative indication of the degree of financial stress that social security funds around the world have faced in recent years is provided by Table 1, which shows, for 59 countries in the period 1975-84, social security funds' deficit or surplus as a percentage of gross domestic product (GDP) before the elimination of transactions with the rest of central government.5 About half of the industrial countries listed have run social security fund deficits of up to 3.0 percent of GDP, with most of the remainder showing continuously declining surpluses of less than 2.5 percent. The majority of developing countries show relatively modest and continuously declining surpluses, of less than 1.5 percent of GDP. Notable exceptions are found in Cyprus and several English-speaking Caribbean countries, where early stages of social security operations are characterized by the accumulation of reserves for future pension benefit payments. Surpluses in these countries ranged from less than 1 percent in Trinidad and Tobago during the period 1976–81 to 7 percent in Guyana in 1984. Table 1 shows the older social security funds in Latin America (Argentina, Colombia, Costa Rica, Mexico, Panama, Uruguay, and Venezuela) running deficits through all or part of the period under review.

Table 1.Social Security Funds' Deficit or Surplus as a Percentage of GDP Before Consolidation with Rest of Central Government
Country1975197619771978197919801981198219831984
Industrial Countries
Austria−3.01−3.54−3.38−2.66−2.59−2.44−2.56−2.66−2.96
Canada0.060.070.060.070.060.080.070.070.06
Denmark0.550.792.011.881.101.001.161.26
Finland0.050.04−0.47−0.56−0.05−0.15−0.08−0.31−0.16
Germany−0.230.13−0.32−0.18−0.100.230.340.47−0.01
Iceland1.280.950.841.531.751.621.650.52
Ireland−0.06−0.090.040.230.060.04−0.14−0.16
Italy2.690.77−0.63−0.480.440.510.52
Luxembourg1.000.730.68−0.52
Netherlands0.580.82−0.310.060.050.04−0.40−0.390.780.46
Spain0.160.83−0.22−0.06−0.72−0.72−2.811.820.38
Sweden1.332.352.362.33
United Kingdom−0.93−1.07−1.15−1.11−1.48−1.18−2.13−1.11−0.93
United States−0.94−0.59−0.39−0.64−0.78−1.11−1.79−0.93
Developing Countries
Africa
Benin0.300.190.17
Burkina Faso0.800.880.620.79
Burundi0.020.230.210.220.250.24
Cameroon0.330.560.220.650.720.72−0.22−0.22
Central African Republic0.21
Congo0.49−0.250.670.63
Cote d'lvoire1.120.76
Djibouti1.01
Mali0.500.580.790.56−0.60−0.17
Mauritania−0.040.460.46
Morocco0.500.580.370.460.710.530.36
Niger0.240.450.41
Rwanda0.340.370.480.530.530.43
Senegal0.320.070.070.00
South Africa−0.04−0.04−0.030.07−0.02−0.01.00−0.01
Togo0.811.161.890.700.380.781.431.52
Tunisia1.471.160.610.45
Zaire0.190.020.090.050.000.190.100.130.00
Asia
Malaysia0.100.110.110.120.130.18
Europe
Cyprus0.110.410.510.410.783.473.333.01
Greece1.311.862.382.051.631.970.37
Malta0.19−0.01
Portugal−0.89−2.361.04
Middle East
0.300.550.720.780.610.500.650.460.51
Iran, I.R. of0.000.000.050.060.000.000.000.000.00
Israel1.201.592.312.051.971.531.071.191.19
Western Hemisphere
Argentina0.760.73−0.04−0.01−0.040.100.04−0.82
Bahamas2.332.081.991.881.77
Barbados2.121.861.731.372.082.18
Bolivia0.08
Colombia−0.13−0.11−0.19
Costa Rica−0.20−0.71−0.33−0.78−0.28−0.62−0.400.151.27
Dominica2.272.151.73
Dominican Republic0.030.010.030.01−0.010.020.01
Guatemala0.01−0.20−0.07−0.05
Guyana1.611.912.132.654.924.445.356.656.797.13
Honduras0.400.44
Jamaica1.451.431.381.251.371.72
Mexico−0.06−0.130.040.060.19−0.23−0.020.020.13
Panama0.280.820.850.600.101.62−1.17−0.01
Paraguay0.410.380.570.590.240.410.320.19
Saint Lucia2.47
Trinidad and Tobago0.960.910.840.720.480.84
Uruguay0.46−0.300.340.560.33−0.75−0.030.100.09
Venezuela−0.03−0.23−0.110.120.200.18−0.10−0.17−0.04−0.08
Source: International Monetary Fund, Government Finance Statistics Yearbook (GFS Yearbook), Vol. 9 (Washington, 1985).Note: An ellipsis (…) indicates a lack of statistical data that can be reported.
Source: International Monetary Fund, Government Finance Statistics Yearbook (GFS Yearbook), Vol. 9 (Washington, 1985).Note: An ellipsis (…) indicates a lack of statistical data that can be reported.

A key element in the financial conduct of many social security funds' operations is the funds' financial relations with the rest of the government. Participation of central government in the financing of social security fund operations may be in the form of (1) a wage-based contribution on behalf of government workers covered by the scheme; (2) a transfer of funds through an appropriation from general revenue to cover all or a portion of a particular program; or (3) a transfer of funds to cover the deficit of the social security system. An examination of the available data indicates that the government's contributions as employer do not constitute a major source of revenue for social security funds and that the funds rely largely on other types of government contributions to carry out their functions.

Table 2 shows central government employer contributions to social security funds as a percentage of social security fund revenue for 35 countries during the period 1975–84. Among the industrial countries, in 1983 such government contributions amounted to less than 4 percent of social security funds revenue, except in Sweden where they reached nearly 13 percent. Developing countries in general show declining or approximately constant ratios throughout the period covered. In Africa in 1979, these ratios ranged from about 4 percent in Benin to about 17 percent in Djibouti. Israel shows declining ratios, from a peak of 16 percent in 1979 to 7 percent in 1983. Within nonindustrial Europe, ratios of government employer contributions to total social security fund revenue remained constant during the period in Greece, at about 1 percent, but increased in Cyprus from a trough of about 6 percent in 1979 to about 13 percent in 1983.

Table 2.Central Government Employer Contributions to Social Security Funds as a Percentage of Social Security Fund Revenue
Country1975197619771978197919801981198219831984
Industrial Countries
Austria2.662.672.682.652.642.572.642.903.06
Denmark
Finland5.574.964.715.024.083.963.904.363.96
Germany
Iceland0.650.670.710.661.101.011.251.13
Ireland
Italy
Luxembourg1.221.031.161.19
Spain
Sweden17.2313.2812.7312.47
United States
Developing Countries
Africa
Benin5.355.274.41
Djibouti17.23
Mauritania5.7014.6215.03
Rwanda6.3514.036.946.776.678.97
Senegal11.64
Togo10.2815.3810.7613.1415.2112.8311.96
Tunisia9.8611.0411.9412.13
Asia
Malaysia
Europe
Cyprus8.477.046.616.2810.0512.7312.3512.97
Greece1.071.111.191.181.281.251.38
Malta
Portugal6.076.555.04
Middle East
Israel12.0514.2511.9515.0916.3214.369.648.797.42
Western Hemisphere
Argentina15.719.3911.7711.298.77
Bahamas9.4611.6811.7910.679.38
Costa Rica2.561.561.731.951.977.454.698.396.53
Dominica21.4822.2923.56
Guatemala9.568.834.373.95
Guyana10.4813.5212.8912.9211.6812.259.664.414.296.32
Honduras11.749.90
Jamaica5.935.314.385.755.014.27
Mexico21.0919.0422.5719.6120.4018.7816.6118.1012.19
Uruguay8.348.016.2711.076.056.285.495.184.99
Venezuela8.138.158.138.277.878.263.483.853.955.50
Sources: IMF, GFS Yearbook (1985); Organization for Economic Cooperation and Development (OECD), Revenue Statistics of OECD Member Countries, 1965–84 (Paris, 1985).Note: A dash (—) indicates that a figure is zero or less than half of a significant digit; an ellipsis (…) indicates a lack of statistical data that can be reported.
Sources: IMF, GFS Yearbook (1985); Organization for Economic Cooperation and Development (OECD), Revenue Statistics of OECD Member Countries, 1965–84 (Paris, 1985).Note: A dash (—) indicates that a figure is zero or less than half of a significant digit; an ellipsis (…) indicates a lack of statistical data that can be reported.

With few exceptions, Latin American countries also show an overall decline in the ratios of government employer contributions to total social security revenue in the period under review. Throughout the various regions of the world, therefore, these statistics show an overall decline in the ratios of government employer contributions to total social security revenues.

There is strong evidence, however, that government contributions in the form of subsidies have become an important source of financing for social security funds. Table 3 shows social security benefits offered in 89 countries and budgetary central government participation through subsidies in the financing of these benefits. Thus, budgetary government in most industrial countries contributes to the financing of all risks except work injury, which is usually financed entirely by employers. Central government covers the entire cost of the family allowances programs in Canada, Finland, Germany, Ireland, Norway, Sweden, and the United Kingdom, and in Denmark the whole cost of old-age, invalidity, and death benefits as well. In Switzerland, “all sickness insurance funds are entitled to federal subsidies.”6

Table 3.Risks Covered by National Social Security Funds and Central Government Participation in Their Financing
Old Age,Sickness
Invalidity,andWorkFamily
CountryDeathMaternityInjuryUnemploymentAllowances
Industrial Countries
Austria(x)(x)x(x)(x)
Belgium(x)(x)(x)(x)(x)
Canada(x)(x)x(x)(x)*
Denmark(x)*(x)(x)(x)(x)*
Finland(x)(x)(x)(x)(x)*
Francex(x)x(x)(x)
Germany(x)(x)(x)(x)(x)*
Iceland(x)(x)x(x)
Ireland(x)(x)x(x)(x)*
Italy(x)(x)x(x)(x)
Japanxxxxx
Luxembourg(x)(x)(x)(x)(x)
Netherlands(x)(x)(x)x
Norway(x)(x)(x)x(x)*
Spain(x)(x)x(x)(x)
Sweden(x)(x)x(x)(x)*
Switzerland(x)(x)x(x)(x)
United Kingdom(x)(x)(x)(x)(x)*
United Statesxxxx
Total (19)1919181917
Developing Countries
Africa
Beninxxx(x)
Burkina Fasoxxx(x)
Burundixxx
Cameroonxxxx
Cape Verde(x)(x)
Central African Republicxxx(x)
Chadx(x)(x)(x)
Congoxxx(x)
Côte d'lvoirexxx(x)
Gabonxxxx
Guineaxxxx
Madagascarxxxx
Malixxx(x)
Mauritaniaxxxx
Mauritius(x)x(x)*
Moroccoxxxx
Nigerxxx(x)
Rwandaxx
Senegalxxx(x)
Seychellesxxx
South Africa(x)*xx(x)(x)*
Sudanxx
Togoxxxx
Tunisiaxxxxx
Ugandaxx
Zairexxx
Total (26)261926221
Sources: U.S. Department of Health and Human Services, Social Security Programs Throughout the World—1983, Research Report 59 (Washington: Government Printing Office, 1984).

Note: An asterisk (*) indicates central government covers the whole cost of the program; “x” indicates social security program operating without central government contributions; “(x)” indicates central government subsidizes the program.

Country19741975197619771978197919801981198219831984
Asia
Korea, Rep. of(x)(x)
Malaysiax(x)*x
Myanmar(x)x
Philippines(x)(x)x
Total (4)24400
Europe
Cyprus(x)(x)*(x)(x)
Greece(x)(x)xxx
Malta(x)(x)(x)(x)(x)
Portugal(x)(x)x(x)(x)
Romania(x)(x)(x)(x)*
Turkeyxxx
Total (6)66644
Middle East
Bahrainxx
Egypt(x)x(x)(x)
Iran, I.R. of(x)(x)(x)x
Israel(x)(x)(x)x(x)
Jordan(x)x
Kuwaitxx
Total (6)63622
Western Hemisphere
Argentina(x)xx(x)
Bahamasxxx
Barbados(x)xxx
Belize(x)(x)(x)
Bolivia(x)xxx
Brazil(x)(x)(x)xx
Chile(x)(x)(x)(x)*(x)*
Colombia(x)(x)xx
Costa Rica(x)(x)x(x)
Dominicaxxx
Dominican Republic(x)(x)x
Ecuador(x)xxx
El Salvador(x)(x)(x)
Grenadaxx
Guatemala(x)(x)(x)
Guyana(x)(x)(x)
Haiti(x)(x)x
Honduras(x)(x)(x)
Jamaica(x)(x)x
Mexico(x)(x)x
Nicaragua(x)(x)x(x)
Panama(x)(x)x
Paraguay(x)(x)(x)x
Peru(x)(x)(x)
St. Luciaxxx
Trinidad and Tobago(x)(x)x
Uruguay(x)(x)x(x)(x)
Venezuela(x)(x)(x)
Total (28)28282759
Sources: U.S. Department of Health and Human Services, Social Security Programs Throughout the World—1983, Research Report 59 (Washington: Government Printing Office, 1984).

Note: An asterisk (*) indicates central government covers the whole cost of the program; “x” indicates social security program operating without central government contributions; “(x)” indicates central government subsidizes the program.

Sources: U.S. Department of Health and Human Services, Social Security Programs Throughout the World—1983, Research Report 59 (Washington: Government Printing Office, 1984).

Note: An asterisk (*) indicates central government covers the whole cost of the program; “x” indicates social security program operating without central government contributions; “(x)” indicates central government subsidizes the program.

The degree of central government participation varies among developing countries. Central government does not appear active in the financing of specific risks in Africa, except for family allowances, for which central government pays the whole cost in Mauritius and a portion in nine other countries. Central government pays the entire cost of family allowances and old-age, invalidity, and death benefits in South Africa. In nonindustrial Europe, central government contributes to all benefits in Malta, Romania, and Cyprus, assuming the whole cost of sickness and maternity benefits in Cyprus and the whole cost of family allowances in Romania. Moreover, it may be noted that in Greece, “arrangements financed from public funds have been introduced to cover agricultural pension scheme contributors and pensioners, and their dependents, against the cost of pharmaceutical products.”7 In half of the Middle Eastern countries listed, central government subsidizes most social security benefits, but does not cover the whole cost of any particular program. Furthermore, in Egypt, “the financial situation of the fund is examined by actuaries every five years in order to establish existing commitments. If there is a deficit in the fund, it is borne by the Treasury and is to be settled later if there is a money surplus.”8

Central government plays a more active role in Latin America, sharing in the financing of old-age, invalidity, and death benefits and in sickness and maternity benefits in most countries. Because work injury, unemployment, and family allowance benefits are less common in this region, government participation in their financing is limited. Only in Chile does the central government pay for the whole cost of unemployment and family allowance benefits, since employer contributions to these programs were abolished in 1980.

A study based on Brazil, Colombia, the Dominican Republic, Nicaragua, Peru, and Venezuela indicated that “with the exception of Peru, legislation in these countries prescribes state participation in the financing of social security through direct transfers from general government funds”; however, “direct state participation in the financing of social security is subject to considerable delays in most of the schemes and can be considered nonexistent in the Dominican Republic.”9 Moreover, it has been observed that “the chronic delay in payment of state contributions is often a major factor in the financial difficulties of the institutions.”10

To obtain an indication of the magnitude of central government support of social security funds in financial terms, it is useful to examine such support expressed as a percentage of total social security fund revenue, as shown in Table 4. Such contributions appear most important among industrial countries, particularly in Denmark and Iceland, where they amounted to about 70 percent and 90 percent of total social security fund revenue during 1975–83, followed by Finland, Germany, Ireland, Italy, Luxembourg, and Spain, with ratios ranging between 10 percent and 30 percent. Also during this period, ratios for Finland and Spain showed a threefold increase; only those for the Netherlands showed a decline, from a peak of 15 percent in 1980 to 3 percent in 1984.

Table 4.Central Government Contributions to Social Security Funds (Excluding Contributions as Employer) as a Percentage of Social Security Fund Revenue
Country19741975197619771978197919801981198219831984
Industrial Countries
Canada2.583.213.223.393.564.314.504.013.57
Denmark72.5176.6780.9175.6971.6874.7671.4668.13
Finland8.848.3510.618.489.5110.9210.6112.9422.94
Germany15.6814.5813.4514.2713.7213.5414.0514.2712.63
Iceland85.4487.1582.8283.6482.9383.8388.6088.81
Ireland20.6217.6319.1220.0523.0828.7727.2427.40
Italy27.8719.5421.1926.4637.2132.7232.94
Luxembourg22.6523.8624.8726.38
Netherlands8.9711.9110.2214.4114.8415.5413.0410.974.193.31
Spain7.104.354.593.007.548.8514.3616.7225.7621.10
Developing Countries
Africa
Benin4.45
Burkina Faso5.05
Burundi34.7432.3851.0441.9533.3358.2924.05
Cameroon2.572.323.864.394.558.78
Central African Republic2.85
Chad100.00100.00100.00
Congo0.050.030.030.10
Côte d'voire1.431.33
Mali0.577.600.770.809.155.75
Niger7.054.181.77
Rwanda1.904.182.012.262.423.21
Senegal11.64
Tunisia4.294.105.114.03
Asia
Malaysia6.6715.0020.8322.8124.6622.86
Europe
Cyprus26.6433.8228.7826.1424.2519.6819.0518.70
Greece6.547.356.967.597.174.947.128.15
Malta38.9133.3133.33
Portugal3.431.884.81
Middle East
Israel16.2517.2220.4316.3612.740.861.8916.5318.07
Western Hemisphere
Argentina1.161.641.421.491.331.311.84
Bahamas5.410.474.804.353.82
Barbados14.3714.728.7710.42
Bolivia5.45
Colombia31.1626.3534.43
Costa Rica1.870.122.9610.356.72
Dominican Republic0.511.051.480.98
Honduras4.934.554.47
Panama1.261.040.410.440.670.640.770.44
Paraguay1.001.071.561.220.990.790.730.80
St. Lucia2.57
Trinidad and Tobago17.9816.1415.5720.4919.9118.46
Uruguay14.959.2710.036.4429.1928.0745.9841.3538.29
Source: IMF, GFS Yearbook (1985).Note: A dash (—) indicates that a figure is zero or less than half of a significant digit; an ellipsis (…) indicates a lack of statistical data that can be reported.
Source: IMF, GFS Yearbook (1985).Note: A dash (—) indicates that a figure is zero or less than half of a significant digit; an ellipsis (…) indicates a lack of statistical data that can be reported.

The magnitude of central government contributions to social security funds varies also among developing countries. Thus, in Chad they represent 100 percent of social security fund revenue, followed by Uruguay with about 40 percent; Burundi, Malta, and Colombia with about 30 percent; and Malaysia, Cyprus, Israel, and Trinidad and Tobago with ratios of about 20 percent. In the remainder of developing countries listed in Table 4, government contributions amount to 10 percent or less of total social security funds revenue.

Thus, a comparison of the magnitude of central government employer contributions and of other government contributions to social security funds, based on Tables 2 and 4, shows a significant difference in the relative importance of these items as sources of social security revenue, particularly among industrial countries. Government contributions other than as employer constitute a more important source of revenue to social security funds in industrial countries and in certain developing countries such as Chad, Cyprus, Greece, Malta, Israel, Malaysia, Colombia, Trinidad and Tobago, and Uruguay. Central government contributions as employer, however, are not a major source of revenue for most social security funds, and their importance has declined over the years. Significant exceptions appear among the English-speaking Caribbean countries with relatively new social security schemes, where the central government seems to contribute mostly in its role as employer.

To provide the budgetary support for social security needs, central governments, particularly in the industrial countries, have found it necessary to tap additional sources of revenue. In Germany, for example, part of a package to deal with the financial crisis caused by the recession of 1974 included a “general tax increase to permit a larger federal subsidy to the pension system,”11 In general, among industrial countries “total reliance on national government aid with regard to the entire cost of the pension dynamic is either a fact, as in the United Kingdom, or a mounting demand.”12 France in 1983 introduced a 5 percent tax on advertising expenditures by the pharmaceutical industry, added new taxes on alcohol and tobacco, and doubled the auto insurance surcharge paid to the health insurance funds.13 Special taxes were imposed in Brazil (on lottery, other gambling, petrol, and imports) and in Panama; value-added taxes and production taxes are levied in Argentina and Uruguay.14

Throughout a conference convened by the International Social Security Association in 1979, “there was acknowledgement of past, and prediction of future, increases in general revenue subsidies in the financing of social security.”15 Both statistics and policy discussions, therefore, reflect the financial stress that most social security funds around the world now face and their increased dependence on central government support. This takes the form of direct budgetary transfers or earmarked collections from special taxes levied for this purpose, with consequent increases in central government influence over benefits, policies, and performance. In many countries, part of central government's strategy to deal with inflation has included curbing of social security fund expenditures by altering the automatic adjustment mechanism for cash benefits, reducing other benefit expenditures, and controlling social security investments. Price increases that accompanied rising unemployment and slow economic growth resulted in financial difficulties for social security funds and the rest of central government. Governments were faced with the need to reduce expenditures, particularly those on public health care and pensions, which “are the two largest items in the social budgets of western states, and represent on average about two-thirds of social expenditure.”16

Thus, “since 1981 several countries have postponed or limited benefit adjustments.”17 In Canada, old-age and family allowance benefits that were previously automatically linked to changes in the consumer price index were capped at 6 percent for 1983 and 5 percent for 1984. Denmark temporarily suspended, from January 1983 to April 1985, the indexation to price changes for certain benefits. Similar changes took place in Finland, Greece, Sweden, Germany, and the United States. In the Netherlands, Finland, and the United Kingdom, the government adjusts the rates at its discretion, whereas Switzerland and Italy adhere to mixed indices.

II. Central Government Control Over Investment of Social Security Fund Reserves

The financial independence of social security funds has been increasingly subjected, in recent years, to the overarching requirements of national fiscal management. “It is only during the past decade that the need has been keenly felt for a thorough study of the relationship between social security and the economy, and the integration of social security resources with the economic strategy. Conventional planning has tended to ignore the interaction between the factors of social security and economic aggregates.”18 To carry out their broader policy objectives, central governments in many countries have found it necessary to control or direct the investment of social security funds reserves, for the management of government debt and the promotion of programs of interest to the government. Central governments have guided social security funds toward investing part or all of their reserves in government securities yielding lower rates of return, or in social projects such as construction of hospitals and medical facilities or projects intended to generate income and contribute to economic development.

In a meeting of experts on investments of social security funds in developing countries, called by the International Labor Organization in November 1983, it was stressed that “the demands made on the social security system to invest its reserves in projects having social or economic value could not be ignored.”19 For example, “in Mauritius, the law requires that reserves be invested mainly in long-term government stocks and Treasury Bills”; in Morocco through 1972, “social security investments could be made only in Treasury Bills or bonds guaranteed by the state.”20 The law was changed thereafter, requiring that social security funds' reserves other than those needed for current operations be deposited with the Deposit and Administration Fund which “acts in accordance with the government policy and the objectives of the Economic and Social Development Plans.”21 In Sudan, “the general policy has been to invest in government bonds and in property, provided that a balance was maintained between social and commercial investments. At the end of June 1982, the investment portfolio consisted mainly of 60 percent in loans to the Government or in Government bonds, 22 percent in fixed deposits in banks, and 16 percent in property.”22

During the Eighth African Regional Conference of the International Social Security Association in September 1984, it was observed that “most of the social security schemes invested the bulk of the reserve funds in government bonds and loans, bank deposits, and property, particularly those concerned with improvements in health infrastructures.”23 In several Latin American countries, “social security institutions lack sophisticated investment machinery or the legislation itself prevents them from obtaining maximum yield on their investments compatible with the capital market situation.”24 Among the English-speaking Caribbean countries, it was apparent that in Barbados, Jamaica, Guyana, and Trinidad and Tobago, “the national insurance boards were making strenuous efforts to identify sound and profitable investments, but were subject to ministerial authority in establishing their investment portfolios.”25 Clearly, a major concern facing all social security funds with investible reserves has been how to reconcile their requirements for sufficiently high yields with the social and economic objectives imposed by investment decisions taken by the central government. Any financial independence exercised in the investment of social security fund reserves in early periods has more recently been constrained by the control of social security fund investments as one more instrument of central fiscal policy.

III. Use of Social Security Funds to Control Unemployment

Central governments, especially in industrial countries, have used social security funds not only to compensate the unemployed but also as a tool to reduce unemployment. To enhance employment opportunities for the unemployed and younger people, authorities have acted to lower retirement ages. In the United Kingdom, for example, 1976 legislation provided for retirement one year before the normal retirement age, with a higher than normal pension when the vacancy created was filled by an unemployed person. “As part of a general policy to encourage employment, France is paying full pensions at age 60 (instead of the previous 65) and has eliminated the incentive of 5 percent a year for delaying retirement.”26 Similar legislation has been passed in other industrial countries (for example, Belgium and Spain). Lowering the retirement age and making early retirement more attractive has also been used to control unemployment among developing countries, such as Tunisia, Nicaragua, and Nigeria.27 The increased benefits that social security funds are called upon to support must be viewed as the cost of meeting the broader social and economic objectives of central government.

Central governments have also used variations in social security contributions as a fiscal policy tool to control unemployment. In Belgium in 1982, for example, employers were exempted from social security contributions over a period of six months in an effort to stimulate employment. In Italy, through a law of November 1980, the central government assumed responsibility for “a reduction in the employers' social security contributions in manufacturing firms and certain other undertakings.”28 In Chile, employer contributions for family allowances and unemployment benefits were abolished in 1980, to be financed out of general tax revenue.29

Central governments have also used social security funds as direct creators of employment. For example, in Seychelles, in order to fight unemployment, the social security system “provides subsistence wages to unemployed persons who choose to work on government-approved work projects.”30 Central governments have also used social security funds to attract foreign workers. In European countries, it has been observed that “where wages are more or less equal, the preference of immigrant workers goes to the countries whose social legislation offers the best advantages”; in Morocco, “social legislation was the means of enticing skilled European manpower to the country shortly after colonization ended.”31

Independent financial management of social security funds has had to give way to the variation of social security benefits and contributions as a fiscal policy instrument to counteract unemployment within the central government's broad mix of economic policies.

IV. Central Government as Direct Provider of Social Security and Welfare Services

The burgeoning size of health, social security, and welfare costs in recent years has stimulated a sharing in the provision for these functions between social security funds and other parts of government. Measurement of social security funds' expenditures alone, or of central government's expenditures excluding social security funds, now fails to portray the full measure of such functions carried out by government.

An indication of participation in the provision of health care services by parts of central government other than social security funds is given in Table 5, which shows budgetary expenditures on health as a percentage of the combined expenditures on this function by central government and social security funds in 20 countries during 1974–84. A wide contrast is evident. In Finland, about 75 percent of all health expenditures are executed inside the budget, followed by the United States and Iceland, with about 40 percent. Other industrial countries listed, however, show low ratios not exceeding 16 percent (Norway in 1977). Latin American countries show ratios ranging from 33 percent in Brazil in 1974 to 73 percent in the Dominican Republic in 1983. The few ratios available for Africa (Cameroon, Djibouti, and Tunisia) suggest that public health in the African countries is offered mainly through health programs carried out directly by central government.

Table 5.Central Government (Excluding Social Security Fund) Expenditures on Health as a Percentage of Consolidated Central Government Expenditures on Health
Country19741975197619771978197919801981198219831984
Industrial Countries
Austria7655998889
Finland74767471717475727475
France66655344
Germany2222211112
lceland393845464039394039
Netherlands88888876677
Norway13121216
Switzerland2221111111
United States5453514846454442393736
Developing Countries
Brazil33332725232523201824
Cameroon1001001001001001009310010098
Costa Rica1510141912
Djibouti66
Dominican Republic82727677797872747473
Greece4349494856636260
Honduras736975
Nicaragua35393363
Panama403938353334343229
Tunisia1001001001009498919296
Venezuela6366666968676267686163
Source: IMF, GFS Yearbook (1985).Note: An ellipsis (…) indicates a lack of statistical data that can be reported.
Source: IMF, GFS Yearbook (1985).Note: An ellipsis (…) indicates a lack of statistical data that can be reported.

Another indication of the magnitude of other social services provided directly by central government can be obtained from Table 6, which shows budgetary central government expenditures on social security and welfare (excluding health) as a percentage of the combined expenditures on this function by central government and social security funds for the period 1974–84. Here, too, contrast is evident. In half of the 16 industrial countries listed, at least 30 percent of social security and welfare expenditures are made by government units inside the budget, with Denmark, Sweden, and Canada showing ratios between 70 percent and 90 percent, and France and Germany showing ratios of about 20 percent. Only Belgium and Italy show ratios not greater than 10 percent. Among developing countries, only 4 of the 16 African countries listed show ratios of 10 percent or less in 1980, while in the remainder up to 67 percent of social security welfare expenditures is carried out by budgetary government units. About half of the nonindustrial European and Middle Eastern countries listed show high but declining ratios of social security and welfare expenditures carried out by budgetary central government, ranging between about 30 percent and 60 percent in the early 1980s, except for Romania, where almost all such expenditures are carried out by the budget. In the Western Hemisphere, most of the English-speaking Caribbean countries also show large but declining ratios of budgetary social security and welfare expenditures, ranging from 80 percent in Trinidad and Tobago in 1980 to about 30 percent in Guyana in 1983. Of the 13 remaining countries in this area, Paraguay, Costa Rica, the Dominican Republic, Honduras, and Venezuela show ratios ranging from about 50 percent to 80 percent, followed by Panama, Argentina, Brazil, and Mexico with ratios between 10 percent and 25 percent.

Table 6.Central Government (Excluding Social Security Fund) Expenditure on Social Security and Welfare as a Percentage of Consolidated Central Government Expenditure on Social Security and Welfare
Country19741975197619771978197919801981198219831984
Industrial Countries
Austria42434241444341414242
Belgium101099755
Canada96959493929191909090
Denmark8984838078777569
Finland35404245474847484648
France2322222221201919
Germany171212141415171721
Italy835591010
Luxembourg8889101210161618
Netherlands2022242221201921252930
Norway14151414211111
Spain1311118101213151920
Sweden8787868583828179777775
Switzerland24192020202021212121
United Kingdom252425273133
United States3335312932313232292726
Developing Countries
Africa
Benin494848
Burkina Faso67647162
Burundi56527680
Cameroon21181351031137
Central African Republic34
Côte d'Ivoire9
Djibouti62
Mali135252594144
Mauritania1110
Morocco59455160695653566057
Niger11122
Rwanda32402733444229
Senegal48505254
Togo34323464614561
Tunisia56564037456712
Zaire3940576071583539
Asia
Malaysia9999999899999999
Europe
Cyprus3253615041373330292525
Greece3433313131313736
Malta6256524536
Portugal10
Romania96969696
Middle East
Bahrain989171606770716424
Egypt6441111119665
Iran, I.R. of52494440284731403647
Israel47544751565554635355
Western Hemisphere
Argentina14118101711191715
Bahamas815248484738
Barbados77767879777573654338
Bolivia4
Brazil25201717161618161518
Chile613211914151728312923
Costa Rica18171621515310545466
Dominica84727754
Dominican Republic51686868667477797980
Guyana7882828373183139352828
Honduras879084
Jamaica787372
Mexico18172120911
Nicaragua22274963598226
Panama2211119122
Paraguay52464648453932445657
Suriname2
Trinidad and Tobago838383848072
Uruguay2912241021142222242123
Venezuela5267686461606970666255
Source: IMF, GFS Yearbook, (1985).Note: An ellipsis (…) indicates a lack of statistical data that can be reported; a dash (—) indicates that a figure is zero or less than half of a significant digit.
Source: IMF, GFS Yearbook, (1985).Note: An ellipsis (…) indicates a lack of statistical data that can be reported; a dash (—) indicates that a figure is zero or less than half of a significant digit.

The sharing of responsibilities for health, welfare, and social security functions between social security funds and other parts of government is reflected also in more closely integrated administrative arrangements. The many ramifications of social security activities in industrial countries have required coordination of social security funds with other central government units in order to economize resources, avoid overlapping of services, promote uniformity of the services provided, and avoid abuse of these benefits. For example, efficient administration of housing benefits available under some social security funds requires close cooperation with the housing authorities of central government. Administration of employment benefits must be integrated with labor market research, placement services, and education policies, which fall outside the confines of social security funds' functions. In the area of health and occupational injury, the prevention of technological risks has required direct central government efforts to make the working environment safer and healthier.

In some countries there is evidence of a movement toward centralization of social security programs within one institution, or the turning over of the administrative powers of social security funds to the budgetary central government. In Greece, for example, “in addition to building up national health service, the Government has continued its efforts to bring the many different social security bodies together within one organization”32 In Hungary, “as from July 1, 1984, the management of social insurance was transferred to the State, through a new National Insurance Administration, which carries out its functions with the status of a state body with national competence, coming directly under the Council of Ministries.”33 In Uruguay, under the Constitutional Decree of October 23, 1979, “the administration of social security was centralized in a new General Directorate under the Ministry of Labour and Social Security.”34

As a result, several autonomous social security agencies have been abolished, and their funds transferred to central government. In France, the Social Security Scheme created in 1930 was endowed with a certain degree of autonomy in relation to the public authorities. The institution carried out its activities with limited government intervention. However, “the 1967 Ordinances put an end to 20 years of self-management.”35 Structural reforms introduced in 1967 ensured tight control by the state over the institution at the national level: “Both through the exercise of supervision and through the reforms in the system the public authorities have gradually carved out for themselves a decisive role in the management of the institution.”36

With the increase in the nature and variety of social services demanded, central governments, particularly among developed countries, have assumed a more active role in the provision of such services as an integral part of budgetary operations, creating the need for coordination with social security funds and making social security funds more dependent on central government guidance and support. An adequate measure of the performance of social security functions in a country has come to require consideration of both the activities of social security funds and those carried out by ministries or departments inside the budget.

V. Importance of Social Security Funds in Overall Government Operations

Although evidence of shared responsibilities indicates the inadequacy of measuring the operations of social security funds alone as a gauge of government health or social security functions, the effect of omitting social security fund operations on the adequacy of data representing central government fiscal policy must also be considered. Social security funds may play an important role in any measure of central government operations that is to be used for economic analysis, planning, and policy purposes and for intercountry comparisons.

An indication of the magnitude of social security fund operations in financial terms is provided in Table 7, which shows revenue, expenditure, lending minus repayments, and the deficit or surplus as a percent of GDP for social security funds in 60 countries, before consolidation with the rest of central government. Among industrial countries, where social security fund operations are most important, their revenues range from about 15 percent to about 20 percent of GDP in 5 of the 14 countries listed in the years shown (1982, 1983, or 1984). The remaining industrial countries show ratios ranging from about 5 percent to about 12 percent, except for Canada, where the low ratio (1.5 percent) reflects the existence of important social security programs within the budget.

Table 7.Social Security Fund Aggregates as Percentages of GDP Before Consolidation with the Rest of Central Government
Social Security
Social SecurityLendingSocial Security
FundSocial SecurityMinusDeficit or
CountryYearRevenueExpenditureRepaymentsSurplus
Industrial Countries
Austria198311.9414.730.17−2.96
Canada19831.520.890.570.06
Denmark19837.906.640.001.26
Finland19835.325.87−0.39−0.16
Germany198319.0319.040.00−0.01
Iceland19829.128.430.170.52
Ireland19837.337.490.00−0.16
Italy198420.9120.390.000.52
Luxembourg198314.7414.760.50−0.52
Netherlands198421.9521.490.000.46
Spain198315.4215.62−0.580.38
Sweden19848.965.441.192.33
United Kingdom19836.056.980.00−0.93
United States19846.807.730.00−0.93
Developing Countries
Africa
Benin19791.411.240.000.17
Burkina Faso19831.440.650.000.79
Burundi19810.590.330.020.24
Cameroon19841.150.920.45−0.22
Central African Republic19811.100.890.000.21
Congo19831.811.180.000.63
Côte d'voire19801.560.84−0.040.76
Djibouti19793.222.200.011.01
Madagascar19741.130.830.000.30
Mali19831.491.660.00−0.17
Mauritania19791.751.290.000.46
Morocco19831.240.880.000.36
Niger19800.730.320.000.41
Rwanda19800.720.290.000.43
Senegal19830.720.720.000.00
South Africa19820.370.300.08−0.01
Togo19843.061.540.001.52
Tunisia19824.123.600.070.45
Zaire19830.250.180.000.07
Asia
Malaysia19810.190.010.000.18
Europe
Cyprus19837.434.420.003.01
Greece198111.4911.120.000.37
Malta19766.456.460.00−0.01
Portugal19779.088.040.001.04
Middle East
Bahrain19841.060.450.100.51
Iran, I.R. of19831.581.580.000.00
Israel19835.183.990.001.19
Western Hemisphere
Argentina19834.925.740.00−0.82
Bahamas19792.670.900.001.77
Barbados19835.393.210.002.18
Bolivia19832.031.950.000.08
Colombia19812.132.170.15−0.19
Costa Rica19837.335.960.101.27
Dominica19792.840.670.441.73
Dominican Republic19830.640.630.000.01
Guatemala19831.401.450.00−0.05
Guyana19848.771.640.007.13
Honduras19761.190.750.000.44
Jamaica19812.210.490.001.72
Mexico19832.822.660.030.13
Panama19828.536.571.97−0.01
Paraguay19822.001.530.280.19
St. Lucia19813.170.700.002.47
Trinidad and Tobago19811.480.640.000.84
Uruguay19848.778.680.000.09
Venezuela19841.501.540.04−0.08
Source: IMF, GFS Yearbook (1985).Note: A dash (−) indicates that a figure is zero or less than half of a significant digit; an ellipsis (…) indicates a lack of statistical data that can be reported
Source: IMF, GFS Yearbook (1985).Note: A dash (−) indicates that a figure is zero or less than half of a significant digit; an ellipsis (…) indicates a lack of statistical data that can be reported

In the four nonindustrial European countries listed, social security fund revenues range from about 7 percent to about 11 percent of GDP, with Greece showing the highest ratio (11.5). Social security funds are the least important in Africa, where most of the countries listed show social security fund revenue ratios of less than 2 percent of GDP. Approximately half of the Latin American countries listed have social security funds with revenues ranging between 2 percent and 5 percent of GDP, and in five countries revenues are higher, amounting to as much as 9 percent of GDP. About a fourth of the countries listed in Table 7 show deficits of less than 1 percent of GDP. Surpluses shown for the remaining countries fall within a range of 0.01 percent to 2.5 percent, except for Guyana, which shows 7.1 percent.

The primary sources of income for social security funds are contributions from employers, employees, and the government and returns on investments of social security reserves. According to the data for social security funds published in the 1985 GFS Yearbook, employers' and employees' contributions account for at least 70 percent of total social security fund revenue in most countries. In Canada, Finland, and Sweden such contributions amount to about 60 percent of total revenue; in Denmark, Egypt, Argentina, and Brazil, between about 40 percent and 50 percent. Whatever their magnitude, social security contributions represent compulsory payments and thus resemble a wage tax. Social security contributions by employers and employees are an important part of the tax structure in many countries and cannot be omitted from the statistics of central government without giving an incomplete picture of tax revenue.

To measure the importance of contributions to social security funds in overall central government tax revenue, Table 8 compares central government tax revenue for 72 countries as a percentage of GDP both before and after consolidation with social security funds, for the earliest and most recent years available in the 1985 GFS Yearbook. Again, sharp contrasts in the importance of social security funds are evident. Among industrial countries, the central government tax ratio is raised by only about 1 percent of GDP in Canada, Denmark, and Iceland when consolidated with social security funds, but by as much as about 20 percent of GDP in the Netherlands, followed by about 19 percent in France and about 16 percent in Germany. About a third of the industrial countries show tax ratio increases ranging between 10 percent and 13 percent of GDP when consolidated with social security funds. In the African countries, by contrast, the central government tax ratio increases by less than 2 percent when consolidated with social security funds, except for Tunisia, which shows a 3 percent increase. The effect of including social security funds on the tax ratios of the nonindustrial European countries listed varies from less than 1 percent in Romania to about 12 percent in Hungary. Among Middle Eastern countries, the most noticeable increases as a result of including social security funds in central government tax ratios appear in Egypt and Israel, with 5 percent and 3 percent, respectively. In about two thirds of the Western Hemisphere countries listed, the tax ratio increase from inclusion of social security funds does not exceed 2 percent of GDP, but among the remaining countries the ratio is raised by between 3 percent and 7 percent. The most significant increases (5 percent or more) appear for Brazil, Costa Rica, Guyana, Panama, and Uruguay. It is among industrial countries, as a group, that contributions to social security funds are most important, with 12 of the 18 industrial countries listed showing such contributions of not less than 6 percent of GDP.

Table 8.Central Government Tax Revenue as a Percentage of GDP Before and After Consolidation with Social Security Funds
Central
Government Tax
Revenue,Consolidated
Excluding SocialSocial SecurityCentral
Security FundFund TaxGovernment Tax
CountryYearTax RevenueRevenueRevenue
Industrial Countries
Austria197519.899.5729.46
198320.7611.0431.80
Belgium197526.0912.5338.62
198329.1113.2542.36
Canada197516.850.8317.68
198315.370.8816.25
Denmark197527.680.4828.16
198431.761.1632.92
Finland197521.304.3625.66
198321.813.7825.59
France197518.9514.4033.35
198421.1618.6539.81
Germany197511.8113.5625.37
198311.4916.1827.67
Iceland197525.021.2026.22
198227.810.7728.58
Ireland197524.424.1128.53
198331.885.3237.20
Italy197515.0812.1327.21
198425.8513.8839.73
Luxembourg197523.2210.9334.15
198324.518.7033.21
Netherlands197527.5518.4045.95
198424.0221.0845.10
Norway197522.3111.4333.74
198326.8011.0137.81
Spain19759.599.3218.91
198311.4911.9123.40
Sweden197526.482.8729.35
198430.524.8035.32
Switzerland19758.078.5716.64
19839.019.8718.88
United Kingdom197525.445.4130.85
198327.076.0333.10
United States197512.795.5618.35
198411.626.6618.28
Developing Countries
Africa
Benin197616.221.4517.67
197914.071.3115.38
Burkina Faso197712.920.9813.90
19839.791.1910.98
Burundi19758.860.159.01
198111.370.3811.75
Cameroon197512.630.9713.60
198420.940.7021.64
Central African Republic198113.921.0414.96
Congo198025.431.5626.99
Cote d'lvoire198019.061.2720.33
Djibouti198021.492.5224.01
Madagascar197816.532.1518.68
198210.381.7312.11
Mali197520.221.1621.38
198323.941.5025.44
Mauritania197515.341.0116.35
197915.261.4416.70
Morocco197519.801.1720.97
198320.501.2421.74
Niger197611.200.5211.72
198012.300.6112.91
Rwanda19757.520.477.99
198010.470.5311.00
Senegal198317.700.7018.40
South Africa197518.250.2518.50
198120.550.2920.84
Togo197724.111.6525.76
198422.841.8024.64
Tunisia197519.522.5822.10
198222.753.0525.80
Zaire197521.390.6021.99
198316.910.2117.12
Asia
Malaysia197518.920.1119.03
198121.910.1422.05
Europe
Cyprus197513.391.6715.06
198316.044.4320.47
Greece197516.277.3123.58
198116.669.5726.23
Hungary198436.0411.9948.03
Malta197519.663.7423.40
197820.234.9525.18
Portugal197516.227.2223.44
198324.027.8331.85
Romania19809.350.6910.04
19838.990.569.55
Middle East
Bahrain19768.140.328.46
19844.040.934.97
Egypt197520.735.1325.86
198421.135.2026.33
Iran, I.R. of19758.230.748.97
19835.991.587.57
Israel197532.493.5736.06
198324.192.8327.02
Western Hemisphere
Argentina19755.513.448.95
19838.164.4812.64
Bahamas197513.252.5215.77
197916.121.7717.89
Barbados197522.551.9824.53
198322.454.0526.50
Bolivia19832.441.163.60
Brazil197510.687.1317.81
198311.556.8018.35
Chile197521.753.1724.92
198420.462.3922.85
Colombia19759.711.5411.25
19818.491.349.83
Costa Rica197512.543.8016.34
198315.515.7921.30
Dominica197619.542.7922.33
197924.842.1727.01
Dominican Republic197516.080.5416.62
19838.880.499.37
Guatemala19808.841.2510.09
19827.351.248.59
Guyana197538.341.6239.96
198333.226.9940.21
Honduras197310.430.6811.11
197611.970.8912.86
Jamaica197523.810.8724.68
198128.041.2829.32
Mexico19759.122.2211.34
198314.052.0716.12
Netherlands Antilles19825.673.098.76
Nicaragua197510.601.6012.20
198324.003.2727.27
Panama197513.786.1319.91
198214.286.1420.42
Paraguay19758.571.4310.00
19836.461.658.11
St. Lucia197820.801.4622.26
198325.721.5327.25
Suriname198415.751.2016.95
Trinidad and Tobago197629.030.8329.86
198134.950.8735.82
Uruguay197511.436.2717.70
198412.584.8117.39
Venezuela197525.601.1726.77
198424.560.9525.51
Source: IMF, GFS Yearbook (1985).
Source: IMF, GFS Yearbook (1985).

Although social security fund benefit payments resemble other central government expenditures for these purposes, they may differ significantly in whether they cover long-term risks or short-term risks. Programs providing for old-age, invalidity, and survivors' benefits are characterized by accumulation of large reserves during the initial years of operation to cover future benefit costs. Programs covering sickness and maternity, work injury, unemployment, and family allowances are usually financed out of current contributions, accumulating only small contingency reserves. Overall, however, the importance of social security fund expenditures relative to other central government expenditures shows the same pattern of contrasts between countries as obtained for tax revenues. Table 9 shows central government expenditure as a percentage of GDP both before and after consolidation with social security funds. The consolidation process involves the elimination of all payments between social security funds and the rest of central government before adding the expenditures together.

Table 9.Central Government Expenditure as a Percentage of GDP Before and After Consolidation with Social Security Funds
CentralCentral
GovernmentGovernment
ExpenditureExpenditure
BeforeAfter
CountryYearConsolidationConsolidationDifference
Industrial Countries
Austria197521.9934.9312.94
198325.2539.6214.37
Canada197520.2920.600.31
198323.2424.070.83
Denmark197634.3834.510.13
198344.6244.960.34
Finland197523.3227.734.41
198326.5230.884.36
Germany197515.0029.5614.56
198314.5131.1516.64
Iceland198231.7531.980.23
Ireland197636.6241.104.48
198347.9653.445.48
Italy197833.3441.117.77
198446.3254.768.44
Luxembourg198026.8739.1212.25
198326.9437.2110.27
Netherlands197533.3451.3418.00
198438.1658.8420.68
Spain197411.7319.808.07
198318.5930.8612.27
Sweden198141.6544.703.05
198442.7847.104.32
United Kingdom197429.9436.076.13
198334.4841.466.98
United States197715.7822.456.67
198417.2724.997.72
Developing Countries
Africa
Benin197723.4524.491.04
197920.5821.751.17
Burkina Faso198015.0115.550.54
Burundi197520.2620.460.20
198123.3423.520.18
Cameroon197716.0416.900.86
198421.8422.680.84
Central African Republic198121.1321.990.86
Congo198048.2749.371.10
Côte d'lvoire197930.7231.460.74
198029.6630.490.83
Djibouti197938.5940.231.64
Madagascar197219.2320.220.99
Mali197630.6031.721.12
198363.7065.271.57
Mauritania197741.0142.221.21
197936.2337.261.03
Morocco197739.3840.000.62
198333.0033.880.88
Niger197816.7817.030.25
198019.2519.470.22
Rwanda197510.6910.700.01
198014.1914.310.12
Senegal198023.7024.340.64
198326.7327.450.72
South Africa197419.9520.310.36
198225.2425.540.30
Togo197742.2243.060.84
198435.8637.031.17
Tunisia197932.4333.791.36
198235.0737.292.22
Zaire197536.4336.880.45
198326.1426.320.18
Europe
Cyprus197628.8630.371.51
198330.7832.731.95
Greece197423.7629.856.09
198130.2540.179.92
Malta197444.5848.193.61
197639.1643.474.31
Portugal197523.9932.828.83
197728.5033.645.14
Middle East
Bahrain197632.1532.170.02
198424.1624.610.45
Iran, I.R. of197545.2445.980.74
198326.4828.061.58
Israel197558.9761.342.37
198347.1648.801.64
Western Hemisphere
Argentina197614.9517.652.70
198314.6120.255.64
Bahamas197517.8617.980.12
197918.8219.370.55
Barbados197827.4927.650.16
198326.9829.082.10
Bolivia19839.1810.661.48
Colombia197911.0512.241.19
198112.4713.891.42
Costa Rica197515.1319.144.01
198319.3824.264.88
Dominica197732.7532.790.04
197945.7545.750.00
Dominican Republic197713.9813.980.61
198313.0913.090.64
Guatemala198013.3814.791.41
198311.9413.331.39
Guyana197233.1933.190.52
198484.5885.671.09
Honduras197214.4614.460.41
197616.7116.710.50
Mexico197512.3214.702.38
198323.7526.072.32
Panama197525.9131.605.69
198231.1437.676.53
Paraguay197510.0211.111.09
198210.2511.771.52
St. Lucia198136.2436.240.62
Trinidad and Tobago197625.7025.700.07
198129.8830.250.37
Uruguay197617.3324.176.84
198418.5923.474.88
Venezuela197522.2223.301.08
198423.4024.681.28
Source: IMF, GFS Yearbook (1985).
Source: IMF, GFS Yearbook (1985).

Among industrial countries, the most significant increases in central government expenditure as a percentage of GDP as a result of consolidation with social security funds appear for the Netherlands (about 20 percent), followed by Germany (about 17 percent), Austria (about 14 percent), and Spain (about 12 percent). In seven industrial countries the ratios are increased by between 4 percent and 10 percent as a result of consolidation, and only in three countries (Canada, Denmark, and Iceland) are central government expenditures increased by less than 1 percent of GDP as a result of consolidation with social security funds. Again, the African countries listed show relatively insignificant increases in central government expenditures as a percentage of GDP after consolidation with social security funds, ranging from 0.12 percent in Rwanda in 1980 to 2.2 percent in Tunisia in 1982. Among nonindustrial European countries, the most significant increases from inclusion of social security fund expenditures appear for Greece, with about 10 percent in 1981, followed by Portugal and Malta, with increases of about 5 percent in 1976 and 1977. Middle Eastern countries show increases of less than 2 percent of GDP in 1983–84. Among Western Hemisphere countries, the largest increases in central government expenditure as a result of including social security funds range between 5 percent and 7 percent of GDP for Argentina, Costa Rica, Panama, and Uruguay but are no more than 2.5 percent of GDP in the remaining 14 countries.

These results parallel those for the tax revenues of central government and social security funds, with relatively large increases in central government ratios of expenditure to GDP resulting from consolidation with social security fund expenditures in industrial countries, nonindustrial European countries, and several Latin American countries, and relatively small increments elsewhere.

VI. Conclusions

Several conclusions are suggested by this analysis of the nature and magnitude of the operations of national social security funds and their relationship to other parts of central government. Reflecting both the evolution of social security needs and broader developments in many economies, social security funds have experienced a trend toward greater financial dependence on central government support, have increasingly been used by central government as a tool for the implementation of broader fiscal policy, and have been paralleled by increasing participation by other parts of central government in the direct provision of social security benefits. These developments have implications for the treatment of statistics on social security fund operations.

Insofar as such statistics serve the purpose of alerting or reassuring contributors and beneficiaries about the financial health of these institutions, their separate compilation may be necessary. As a measure of the performance of social security functions, however, data for social security fund operations alone cannot be viewed as adequately comprehensive. At the same time, because social security fund operations have reached significant proportions in many countries, particularly in industrial countries, their omission detracts appreciably from the usefulness of central government data for purposes of economic analysis, policy making, and cross-country comparison. The persistent contrasts between countries in the proportion of social security functions carried out by social security funds and by other parts of central government, finally, give rise to inconsistencies in any cross-country comparisons based on either social security funds alone or on other parts of central government alone. The most useful course of action, it would seem, would lie in the initial compilation of data on social security fund operations to show their financial health, followed by the consolidation of such data with the statistics for the rest of central government for the more comprehensive analysis of central fiscal policy and the performance of social security functions.

U.S. Department of Health and Human Services, Social Security Administration, Office of Policy, Social Security Programs Throughout the World1983, Research Report 59 (Washington, D.C.: Government Printing Office, 1984).

International Social Security Association, International Social Security Review (Geneva).

As noted in U.S. Department of Health and Human Services, Social Security Program Throughout the World, social security funds covering old-age invalidity and death have operated in the Federal Republic of Germany, Austria, New Zealand, Iceland, the United Kingdom, the Netherlands, and Sweden for over 70 years and in Argentina, Uruguay, Brazil, and Chile for at least 60 years.

Raymond Poirrier, “Recent Developments in the Public Information Activities of Social Security Institutions,” International Social Security Review, 2/85, p. 201.

“Before consolidation with the rest of central government” refers to social security fund data that include all payments and receipts between them and other central government units. These payments and receipts are eliminated as intra governmental transactions when data for social security funds are combined with those relating to budgetary and extrabudgetary accounts to produce data for the consolidated central government.

Jean-Francis Charles, “Social Security in Switzerland: Main Features of the Schemes and Current Problems,” International Social Security Review, 2/84, p. 186.

International Social Security Association, “Social Security News,” “Social Security in the Member States of the European Community in 1983,” International Social Security Review, 4/84, p. 448.

Ministry of Social Insurance, Arab Republic of Egypt, “Social Insurance in the Arab Republic of Egypt,” International Social Security Review, 4/84, p. 425.

Hernando Perez Montas, “Problems and Perspectives in the Financing of Social Security in Latin America,” International Social Security Review, 1/83, p. 77.

Ibid., p. 75.

George Rohrlich, “Maintaining Social Security Pension Schemes Adequate and Solvent—A Transnational Synopsis of Problems and Policies,” International Social Security Review, 2/80, p. 151.

Ibid., p. 152.

U.S. Department of Health and Human Services, Social Security Programs Throughout the World, p. xiii.

Perez Montas, “Problems and Perspectives,” pp. 70–71, 77.

Rohrlich, “Maintaining Social Security Pension Schemes,” p. 152.

F. Kaufmann and L. Leisering, “Demographic Changes as a Problem for Social Security Systems,” International Social Security Review, 4/84, p. 395.

U. S. Department of Health and Human Services, Social Security Programs Throughout the World, p. xii.

Mohamed Gourja, “The Contribution of Social Security to Development of Objectives: The Role of Income Support Measures,” International Social Security Review, 2/81, p. 131.

International Social Security Association, “International News,” “Meeting of Experts on Investment of Social Security Funds in Developing Countries,” International Social Security Review, 2/84, p. 219.

Gourja, “Contribution of Social Security to Development,” p. 145.

Ibid., p. 142.

International Social Security Association, “ISSA News,” “Eighth African Regional Conference,” International Social Review,4/84, p. 480.

Ibid., p. 481.

Perez Montas, “Problemsand Perspectives,” p. 85.

International Social Security Association, “ISSA News,” “Third Meeting of the Heads of ISSA Member Organizations in the English-speaking Caribbean,” International Social Security Review, 1/83, p. 117.

U.S. Department of Health and Human Services, Social Security Programs Throughout the World, p. xiii.

Ibid., pp. xii-xiii.

International Social Security Association, “International News,.” “Social Security in the Member States of the European Community in 1980,” International Social Security Review, 2/81, p. 210.

International Social Security Association, “Social Security News,” “New Pension Legislation in Chile,” International Social Security Review, 2/81, p. 198.

International Social Security Association, “Social Security News,” “Seychelles: Full Employment Scheme Established,” International Social Security Review, 2/81, p. 201.

Gourja, “Contribution of Social Security to Development,” p. 147.

International Social Security Association, “International News,” “Social Security in the Member States of the European Community in 1984,” International Social Security Review, 3/85, p. 309.

International Social Security Association, “Social Security News,” “Hungary: Transfer of the Management of Social Insurance to the State,” International Social Security Review, AIM, p. 444.

International Social Security Association, “Social Security News,” “Uruguay: Pension Age Raised,” International Social Security Review, 2/80, p. 208.

Antoinette Catrice-Lorey, “Social Security and the State in France: What Management Autonomy Should the Institution Enjoy?,” International Social Security Review, 2/83, p. 193.

Ibid., p. 203.

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