Appendix 1. European Experiences with Integrating Security Forces82
Austria. All Austrian law enforcement agencies were merged into the Federal Police, or Bundespolizei, in 2005. Before the reform, the Austrian police consisted of three forces: the gendarmerie (Bundesgendarmerie), which was responsible for about two thirds of the population and approximately 98 percent of the Austrian territory, the federal safety guard (Bundessicherheitswachekorps), and the judicial police (Kriminalbeamtenkorps). The new federal police force comprises a uniformed generalist police force and specialized bodies in certain areas. The main objectives of the 2005 reform were to (1) increase efficiency of crime prevention and repression, (2) maximize the field presence, and (3) streamline administrative processes, flatten hierarchical levels, and avoid of parallel structures. In the reform process, employee satisfaction was taken into account. Several public debates were held across the country in presence of policemen, politicians, trade unionists, and the Interior Minister. The fusion of the different police forces occurred at all the levels of the hierarchy.
Belgium. The Belgian police used to be fragmented, comprising the gendarmerie (with military status), the local police, and the judicial police. In addition, there were specialized police forces, principally the railroad police and the military police (marine and air force). As a result, the Belgian police system appeared inefficient and insufficiently coordinated. In the early 1990s, the “Pentecôte” plan contributed to demilitarizing the gendarmerie. Previously, under the supervision of the Defense Ministry, with co-responsibility in the Ministries of the Interior and Justice, the gendarmerie was now placed under the sole supervision of the Interior Ministry. Also, it was changed into a classic police force and its recruitment statutes and training were modified. In 1998, with the “Octopus” agreement, the Belgium authorities decided to create a fully integrated police, merging all general and specialized police forces. This integrated police has two levels: the federal level and the local level. The gendarmerie was abolished and its officers were integrated into the new police force. The reform built upon the principles of the “community-oriented policing”: the decentralization (i.e., responsibilities at the lowest possible level of the organization), deconcentration (i.e., spreading of police forces across the territory), and de-specialization (i.e., police forces have broad-based skills to avoid the need for intervention by other services).
Greece. In 1984, the Hellenic Police (Elliniki Astynomia) was created as a result of merging the gendarmerie (Chorofylaki) and the Urban Police Forces (Astynomia Poleon). The aim of abolishing the gendarmerie force was to demilitarize the police system. The police includes central and regional services. The policy force is under the supervision of the Ministery for Citizen Protection and consists of police officers, border guards and special police guards.
Luxembourg. On January 1, 2000, Luxembourg unified its police forces into the Grand Ducal Police (Police Grand-Ducale, PGD), which resulted from a merger of the Gendarmerie and the National Police. The objective was to rationalize means and enhance outcomes. The PGD is under the supervision of Interior Ministry but operates under the ultimate control of the Grand Duke. The PGD is responsible for ensuring Luxembourg’s internal security, maintaining law and order, border control and enforcing all laws and national decrees. It is also responsible for assisting the military in its internal operations.
Richard A. Musgrave, 1959, The Theory of Public Finance, New York: McGraw Hill; and James M. Buchanan and Gordon Tullock, Gordon, 1962, The Calculus of Consent: Logical Foundations of Constitutional Democracy, University of Michigan Press.
See, for example, A. Bergh and M. Henrekson, 2011, “Government Size and Growth: A Survey and Interpretation of the Evidence,” IFN Working Paper No. 858, Stockholm/Sweden; available at http://tinyurl.com/4yrv5kh.
A. Afonso and D. Furceri, 2008, “Government Size, Composition, Volatility and Economic Growth” ECB Working Paper, No. 849 (January 2008), European Central Bank (http://tinyurl.com/bvmkqjs). Similar results can also be found in A. Afonso and J. Tovar Jalles, 2011, “Economic Performance and Government Size,” ECB Working Paper, No. 1399 (November 2011), European Central Bank (http://tinyurl.com/6nfr3u8).
For revenues, Afonso and Furceri argue that indirect taxes and social contributions are more detrimental to growth than direct taxes. However, their analysis is not in line with theoretical considerations and other empirical studies, which suggest that consumption taxes, recurrent property taxes, and environmental taxes are least detrimental to growth. Hence, a shift away from income (in particular, corporate income) taxation to consumption taxes would be growth-enhancing. See OECD, 2010, Tax Policy Reform and Economic Growth, OECD Publishing, (http://tinyurl.com/bob268v). Also see D. Prammer, 2011, “Quality of Taxation and the Crisis: Tax Shifts from a Growth Perspective,” Working Paper No. 29, European Commission (DG TAXUD) (http://tinyurl.com/cm68me9), as well as European Commission, 2012, “Tax reforms in EU Member States 2012—Tax Policy Challenges for Economic Growth and Fiscal Sustainability,” European Economy, 6/2012 (http://tinyurl.com/c62g5os). The main take-away from this discussion is that composition effects matter.
See V. Tanzi and L. Schuknecht, 2000, Public Spending in the 20th Century, Cambridge University Press. Also see V. Tanzi and L. Schuknecht, 2003, “Public Finances and Economic Growth in European Countries,” in Fostering Economic Growth in Europe, conference volume of the 31st Economics Conference of the Östereichische Nationalbank, Vienna, 2003, 178–96, available at http://tinyurl.com/chkrb6x. Today it is certainly more difficult (compared to over 50 years ago) to achieve a spending level of 30 percent of GDP, given higher living standards (and expectations), longer life expectancies, and much older population structures.
A. Sapir, 2006, “Globalization and the Reform of European Social Models,” Journal of Common Market Studies, Vol. 44, No. 2, pp. 369–90 (http://tinyurl.com/bn8vy6d).
U. Mandl, A. Dierx, and F.Ilzkovitz, 2008, “The Effectiveness and Efficiency of Public Spending,” European Economy, Economic Papers No. 301, February 2008 (http://tinyurl.com/c9xssoo).
A.. Afonso and M. St. Aubyn, 2005, “Non-parametric Approaches to Educational and Health Expenditures Efficiency in OECD Countries”, Journal of Applied Economics, Vol. VIII(2), November, pp.227–46 (http://tinyurl.com/bvt8653). More recent research would support similar conclusions. See, for example, the information on Portugal contained in the data set that is presented in F. Grigoli, 2012, “Public Expenditure in the Slovak Republic: Composition and Technical Efficiency,” IMF Working Paper, WP/12/173 (July 2012), IMF/Washington (http://tinyurl.com/cg8lf5g).
M. St. Aubyn, Á. Pina, F. Garcia, and J. Pais, 2009, “Study on the Efficiency and Effectiveness of Public Spending on Tertiary Education,” European Economy, Economic Papers No. 390, November 2009 (http://tinyurl.com/cgfvh6s).
See, for example, IMF, 2010, From Stimulus to Consolidation, Departmental Paper (Washington: IMF), (http://tinyurl.com/3om47ds). Also see, Margit Molnar, 2012, Fiscal Consolidation: Part 5. What Factors Determine the Success of Consolidation Efforts? OECD Working Paper No. 936 (http://tinyurl.com/dxrh6wu).
See Raffaela Giordano and others, 2011, “The Public Sector Pay Gap in a Selection of Euro Area Countries,” ECB Working Paper, No.1406. Available at http://www.ecb.int/pub/pdf/scpwps/ecbwp1406.pdf.
See Silvia Ardagna, 2004, “Fiscal Stabilizations: When Do They Work and Why,” European Economic Review, Vol. 48 (5), pp.1047–74. Available at http://tinyurl.com/br4bknt.
A. Lemgruber and M. Soto, 2012, “Growth Friendly, Equitable, and Sustainable Fiscal Reform in Portugal” Selected Issues Paper, prepared for the IMF’s 2012 Article IV Consultation with Portugal (forthcoming).
The benchmarking exercise, which the government carried out earlier this year, analyzes the development of different government expenditures items over time, and compares Portuguese spending patterns and spending outcomes with those of EU comparator countries. The mission team broadly agrees with the analysis.
When public hospitals were transformed into corporations and reclassified in the national statistics (as part of the public enterprise sector), the number of SOE hospital employees increased from 55,000 in 2006 to 96,000 in 2010, and their total compensation increased from 1.7 billion (1 percent of GDP) in 2006 to 3 billion (1.7 percent of GDP) in 2010. This reclassification lowered the government wage bill (in the budget) accordingly. For 2012, the total number of SOE hospital employees was estimated at about 90,000.
Around 90 percent of those with a funções públicas contract received this contract before 2009 and still have full tenure due to a safeguard clause agreed during the reform.
These numbers refer to different universes, given that a broad-coverage statistical database on general government public employment has been launched in 2012. Data on 2011 and earlier years have a narrower coverage (central administration only).
The public wage premium is high in nominal terms and after controlling for skill differences. This premium increases further when controlling for the number of hours worked and holiday entitlements.
For a detailed account on how to evaluate the public wage bill see B. Clements and others, 2010, “Evaluating Government Employment and Compensation,” IMF Technical Notes and Manuals, IMF (Washington DC).
R. Giordano, and others, 2011, “The Public Sector Pay in a Selection of Countries,” ECB Working Paper, No. 1406. These figures do not take into account the latest measures taken by the authorities in 2011–2012, i.e., the average reduction of 5 percent on public-sector salaries and the elimination of the 14th monthly pay.
Data are based on information available at http://tinyurl.com/cqg66p8. Discussions during the mission suggested that there are additional security forces (e.g., courts) that are not included in these data.
After controlling for purchasing power, the remuneration packages for doctors are above those in Germany, Norway, and Italy.
The Index of HRM Delegation to the Ministries has been built using data from OECD (Government at a Glance, 2011). The index ranges from 1 to 9 and larger numbers imply that all human resources decisions are delegated to the ministries or department units. The dimensions that this index takes into account are the following: wage setting decisions, flexibility of working conditions, allocations of budgets, performance appraisals, performance bonuses, number of posts within units and decisions to hire new employees.
The term “overall pay scale” refers to Tabela Remuneratória Unica.
The SMP is intended for people who are redundant (i.e., in surplus) as a result of reorganizations within the public administration. It pays full salary for the first 2 months, 66 percent of the salary the next 10 months, and 50 percent from one year onwards. In general terms, under the existing rules, the majority of workers in public administration (comprising “nominees” and “ex-nominees”) can stay in the SMP (earning 50 percent of their previous salary and full social security contributions) until they retire.
There was a significant use of the special mobility pool arising from the former streamlining program (PRACE-2008), but from that time onwards, the mobility pool has been rarely used. The number of workers in the mobility scheme as of June 30th, 2012 was 1,144 (based on SIEP data).
Part of the difficulty of using the special mobility pool has been attributed to the cumbersome evaluation model that it entails. In order to speed up the process, one possibility could be to introduce a system of online national exams for the public workforce that generates objective criteria to assign workers to the mobility pool.
For example, the SMP could incorporate retraining activities that retrain participants in new competency areas. To provide incentives (including for voluntary participation in the SMP), this could be combined with an offer to take back those who meet certain qualifications in new positions and at a pay premium. SMP training could be combined with other active labor market tool s (e.g., based on the job rotation experiences of the Nordic countries). Also, a limited number of unemployment insurance recipients could be offered to participate in SMP training activities to provide them with relevant training and experiences that could help them to compete for a future job in the government.
The causes for dismissals of public sector workers would have to be modified, especially for those with contratos em funções públicas.
As reference, in 2011-12, gross attrition has been above 3 percent.
As defined here, the term “pensions” includes both contributory and noncontributory benefits for old age, disability, and survivors.
The ongoing pension system maturation might also have put pressure on average benefits in the GCR. For example, new GCR retirees have longer contribution histories—the average number of contribution years taken into account for old-age pension calculations increased from 26 years in 2002 to nearly 30 years in 2010. However, this likely played only a small role, since most GCR pensioners receive minimum pensions and the benefit formulas have changed to account for full contribution careers.
After 2006 the minimum pension has been linked to the Social Support Index (IAS), which has grown in line with GDP per worker.
However, these mergers have largely been neutral for the state budget from an actuarial perspective, as the assets transferred to the treasury roughly equaled the net present value of all future benefits to be paid.
Pension spending to GDP can be decomposed into four factors as follows: spending/GDP = (population 65+/population 15–64) * (spending/pensioners)/(GDP/worker) * (pensioners/population 65+) * (population 15–64/workers). The last component helps to capture macroeconomic effects.
For more information, see Decreto-Lei 277/1993, Decreto-Lei 329/1993, Lei 32/2002, Decreto-Lei 35/2002, Lei 60/2005, Lei 4/2007, Decreto-Lei 187/2007, and Lei 52/2007.
Portugal has one of the lowest projected increases in public pension spending over 2010–2060. See the 2012 Ageing Report of the European Commission (Table 2, Page 38 of http://tinyurl.com/9mada9x).
In advanced Europe, only Belgium, Greece, Ireland, Italy, Slovenia, Spain, and the United Kingdom have higher at-risk-of-poverty rates for the over-65 population.
The 2012 Ageing Report (http://tinyurl.com/9mada9x), which Figure 4.5 draws upon, does not yet fully take into account some of the most recent measures which have reduced benefits for current retirees with relative high pensions and thereby somewhat reduced the future adjustment burden.
These projections were finished by end-2011 and assumed the continuation of the 13th and 14th payments. Thus, assuming that only the 14th payment is eliminated would result in an even lower projected increase over 2010–2020 than originally projected. Note also that earlier projections have proven optimistic. For example, the key study underlying the 2002 pension reform projected spending in the GCR to increase by just 1 percentage point of GDP over 2000–2010, about half the actual increase. See Table 10 of “A sustentabilidade financeira do sistema de solidariedade e segurança social: relatório final,” available at http://tinyurl.com/cpcq5qj.
Average pensions are calculated using the total amount of old-age spending projected for 2013 (€6,773 million for CGA million and €11,330 for GCR) and the number of pensioners (393,000 and 2,014,000 respectively). Pensionable wages are from Table 10 of the Ageing Report Country Fiche for Portugal.
Recent reforms have curtailed the use of the reserve system for younger ages, but the retirement remains a possibility at age 60 for the military and police forces.
Experiences of European countries (e.g., France, Greece, Italy) also suggest that relatively high pension spending may lower the incentives to participate in the labor market (Figure 4.5).
Note that these objectives can easily be at odds with each other, and therefore require carefully planned and thought-out measures to avoid moral hazard. For example, focusing on benefit reductions for high-end pensions could potentially erode the link between contributions and benefits and increase incentives for informality.
Hungary replaced the 13th pension with a bonus that depends on GDP growth (http://tinyurl.com/d5vatcp).
In Sweden, pensions are normally indexed to the rate of growth of earnings minus 1.6 percent. However, when the balance ratio (a measure of actuarial assets to actuarial liabilities) is less than one, pensions are indexed to the growth of earnings minus 1.6 percent minus (1-two year lag of the balance ratio). For example, the balance ratio was 0.9826 in 2008 and the growth rate of wages was 0.3 percent. As a result, pension benefits were reduced by 3 percent in 2010 (0.3-1.6-1.74). See http://bit.ly/swedenpenadj.
The EU15 grouping includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
K. Stovicek and A. Turrini. 2012, “Benchmarking Unemployment Benefit Systems.” European Economy, Economic Papers 454, Directorate-General for Economic and Financial Affairs, European Commission, May. (http://tinyurl.com/bmup92q).
Current workers will be entitled to the benefits under the old rules for their first post-reform unemployment spell. Hence, to be moved to the new system, a worker who becomes newly unemployed or is already unemployed would need to find a new job and then lose it again. This increases risk aversion against accepting a new job in the first place, unless it comes with reasonable job security.
The higher pre-primary enrollment reflects an increased supply of such facilities in response to demand (e.g., from families with two income earners). The higher secondary enrollment largely reflects a new high-school equivalency program (Novas Oportunidades) that was introduced in 2005. Novas Oportunidades widens options in vocational education, provides double certification, and (at the secondary level) is geared toward reducing the number of drop-outs.
Participation in tertiary education has increased significantly. Currently, total enrollment in tertiary institutions amounts to 62 percent of the 20–24 age cohort, up from 47 percent in 2000.
See S. da Cruz Martins, R. Mauritti, and A. Firmino da Costa, 2005, Condições Socioeconómicas dos Estudantes do Ensino Superior em Portugal, DGES (Ministry of Science, Technology and Higher Learning), Lisbon (http://tinyurl.com/c3nmty3).
Calculations take into account the reduction in education sector employment that has already taken place during 2010–12 (Table 6.1) and target average student-teacher ratios that are more in line with other advanced countries (12–15), while also assuming some reductions in non-teacher employment in the education sector.
Tribunal de Contas, 2012, Apuramento do Custo Médio Por Aluno, Relatório N.° 31/2012 (Proc.° n.° 39/2011), (http://tinyurl.com/cy8cknh).
P. Roseta (Presidente), A. Egídio dos Reis, C. S. Sarrico, L. Carvalho (Grupo de Trabalho Para o Apuramento do Custo Real Dos Alunos do Ensino Público por Ano de Escolaridade), 2012, Estimativas do Custo por Turma do Ensino Básico (2° e 3° ciclos) e Secundário: Relatório Final. August 31, 2012.
An example of such a system is the Netherlands, where education policy is determined centrally, but the administration and management of schools is decentralized. Schools have the freedom to manage financial resources and personnel policy. Families are free to choose the school their child attends. It is easy for new providers to enter the market. The result is a substantial degree of competition in the system. The Dutch school choice system not only performs well academically, but also yields these results at a relatively low cost. See http://tinyurl.com/csjquse.
The €400 figure is flagged in the study of the Tribunal de Contas. The MEC working group estimated per student savings of only €50, but excluded overhead expenditures; if included, much higher savings would result.
See D. Coady and K. Kashiwase, “Public Health Care Spending: Past Trends,” in B. Clements, D. Coady, and S. Gupta (editors), 2012, The Economics of Public Health Care Reform in Advanced and Emerging Economies, International Monetary Fund (Washington DC), pp. 23–36 (http://tinyurl.com/d7q79m9).
In addition, Portugal has above-average private health expenditures, which pushed total health expenditures up to 10.7 percent of GDP in 2010, more than 1 percentage point of GDP above the OECD average. Overall, the government accounts for only 2/3 of all health care expenditures, which compares to an average of over 75 percent in OECD and EU-27 countries.
World Health Organization, ACS, 2008, The World Health Report 2008:Primary Health Care – Now More than Ever. Geneva, WHO, available at http://www.who.int/whr/2008/en/index.html.
See, for example, World Health Organization, 2010, Portugal Health System Performance Assessment (http://tinyurl.com/cln7g4a), or OECD, 2012, OECD Health Data 2012 (http://tinyurl.com/byrv869).
See I. Joumard, C. André and C. Nicq, 2010, “Health Care Systems: Efficiency and Institutions,” Economics Department Working Papers No. 769, OECD (Paris) (http://tinyurl.com/cx6wykm).
For a detailed review, see, P. Barros, S. Machado, and J. Simões, 2011, “Portugal: Health System Review,” Health Systems in Transition, 13(4), pp. 1–156. (http://tinyurl.com/bjmbevh).
See M. Soto, B. Shang, and D. Coady, 2012, “New Projections of Public Health Spending, 2010-50,” in Benedict Clements et al., The Economics of Public Health Care Reform in Advanced and Emerging Economies, International Monetary Fund (Washington DC), pp. 37–52 (http://tinyurl.com/d7q79m9).
The EC 2012 Ageing Report projects an increase in public health spending of 0.7 percentage points of GDP over 2015–2030. This lower increase relative to the IMF estimates reflects an assumption that technology does not increase costs, which would be a sharp break from past trends. Nevertheless, even under these EC estimates Portugal is projected to experience one of the largest increases in health spending in the EU27 over this period, only surpassed by Austria, Malta, and the Slovak Republic.
In addition, the government has focused on eliminating arrears in the health system. A summary of ongoing and planned health care reforms is contained in the government’s reform agenda as set out in its Letters of Intent to the European Commission and the European Central Bank. See, for example, “European Economy: The Economic Adjustment Programme for Portugal, Fifth Review—Summer 2012,” European Commission Occasional Papers 117 (October 2012), available at http://tinyurl.com/c377b9c, and also earlier Letters of Intent (e.g., http://tinyurl.com/d96jutj).
This has included, for example, higher user fees (taxas moderadoras) for the SNS; changes in the pricing and reimbursement of pharmaceuticals; changes in the prescription system (such as compulsory electronic prescriptions) and the monitoring of prescriptions; changes in distribution mark-ups of pharmaceuticals for retailers and wholesalers; reductions in budget allocations for the health subsystems which, together with a review of the scope of health benefits, intend to make these systems self-financed by 2016; a centralization of purchasing and procurement; changes in primary care services and coordination to prevent unnecessary visits to specialists and emergency rooms; and various measures to reduce operational expenditures in hospitals. The various changes have been implemented carefully so far, including by safeguarding access for the poor. See for example, http://tinyurl.com/cozc5vn, regarding exemptions from the taxas moderadoras.
I. Joumard, 2011, “Cross-Country Comparison of Health Care System Efficiency,” Presentation at FAD/EUO Conference on “Public Health Care Reforms: Challenges and Lessons for Advanced and Emerging Europe,” available at http://tinyurl.com/buvw6kr.
For example, the separate hospitals for the different branches of the security forces are slated for consolidation into one single military hospital (currently under construction) that is to open in 2014.
A total of 5.2 million users are exempt on the basis of “insufficient resources” alone. Also exempt are specific categories of patients, including all children up to 12 years of age (regardless of the income of their parents), blood donors, firefighters, and pregnant women. See, ACCS, Revisão de Categorias de Isenção e Atualizacão das Taxas Moderadoras, available at http://tinyurl.com/cm88jea.
There are four levels of taxas moderadoras for pharmaceuticals: level A (90 percent); level B (69 percent); level C (37 percent); and level D (15 percent). Most medicines are included in levels C and D.
Portugal’s Constitution calls for affordable public health care, and increasing taxas moderadoras generates resistance from entrenched interests. As a result, cost recovery from patients, even those who can afford to pay more, is small and partial. An increase of €50 million in user fees was targeted for 2012 but will not be achieved. For 2013, the government projects to collect €190 million.
See for example, J. Tyson et al,, 2012, “Containing Public Health Spending: Lessons from Experiences of Advanced Economies,” in Benedict Clements et al., The Economics of Public Health Care Reform in Advanced and Emerging Economies, International Monetary Fund (Washington DC), pp. 101–23. (http://tinyurl.com/d7q79m9).
Prepared by Jeanne Pavot.