Social Protection Expenditure

Social protection expenditure is spending by the state on health, pensions, unemployment and social exclusion. It's helpful to look at it separate from other government expenditure like defence, subsidies to farmers etc, and Eurostat have helpfully issued a report on social protection expenditure in the EU.

Rather than post the figures for the entire EU, I thought we'd look at the figures for the UK, Ireland and Italy (if you are interested in the other member states please click the link above).

Expenditure as a % of GDP was as follows:

          1994  1996  1998  2000  2001  2002  2003
UK        28.6% 28.0% 26.9% 27%   27.5% 26.4% 26.7%
Ireland   19.7% 17.6% 15.2% 14.1% 15.0% 15.9% 16.5%
Italy     26.0% 24.8% 25.0% 25.2% 25.6% 26.1% 26.4%

Ireland's figures look fantastic, but the reason only becomes
apparant when you look at the breakdown.

Table of social benefits by function group in 2003 (as a % of total social benefits)

      Oldage/   Sickness/  Disability Family/   Unemploy  Housing/
      Survivors Healthcare            Children  ment      Social 
Uk    44.9%     29.6%       9.4%      6.9%      2.7%      6.5%      
Eire  23.2%     41.1%       5.1%      16.0%     8.4%      5.6%
Italy 61.8%     25.7%       6.4%      4.1%      1.8%      0.2%

You can see straightaway that Ireland doesn't spend much on old age
pensions and widows benefits. A corollary of having few old people is that health spending in absolute terms will be lower than in the older countries too, as most healthcare is consumed by the old - and hence their overall social protection spending is lower. They are a young country compared to both Britain and Italy. Nearly 17% of Brits are over 65 and the amount is set to rise to about 25% as Britain's birthrate has been below replacement for a few decades. 11.5% of Irish are over 65 and the percentage is likely to stay where it is as Ireland's birth rate remains above replacement, and has never fallen below.

What would happen if Ireland's birth rate fell - their social protection spending would rise, along with the taxes to pay for it. Their tax regime is a product of favourable demographics (the founders of our welfare state imagined that our demographics would be like Ireland's are now - unfortunately successive generations didn't do their bit). As for the UK - our spending on pensions is likely to become like Italy's - they've solved it by not spending much on other areas like housing - perhaps a taste of things to come here, unless we can reverse the demographic trend.