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World Bank: social protection spending in Latvia too low

BC, Riga, 04.06.2013.Print version
Spending on social protection in Latvia is still comparatively low when compared to the other European Union member states, and the system of benefits is not favorable enough for low-income residents, according to the World Bank's study "Latvia: Who Is Unemployed, Inactive or Needy?", reports LETA.

Although Latvia is one of the few countries that expanded their social protection networks during the crisis, the amount of funds spent on supporting the poor is low, the World Bank Country Director for Central Europe and the Baltic Countries Mamta Murthi said in presenting the study today. The benefit system could be altered to make it more favorable to low-income residents and help reintegration of the unemployed into the labor force, she said.

 

According to the World Bank's study, Latvia's average spending on social protection in 2009 was 13% of gross domestic product, while the EU's average figure was 21%.

 

The study says the main drawbacks of the social protection system in Latvia include the universal benefits or such benefits that residents receive irrespective of their income, for instance, benefits for the disabled and families with children. According to the World Bank's data, Latvia is the fourth most forthcoming country in the EU toward high-income residents, providing about 50% of these residents with some kind of social protection aid.

 

The World Bank suggests removing the wealthy from the list of recipients of the universal benefits. This, the World Bank believes, will ensure more adequate support for residents who truly need it.

 

Welfare Minister Ilze Vinkele (Unity) admits that this is a problem that needs to be tackled. When asked which benefits such changes could concern, she said that the monthly benefit of LVL 8 to families could be revised, but not the benefits for the disabled.

 

The World Bank experts also note that increasing employment and productivity is very important for Latvia. "Getting the unemployed back to work is key to preventing social exclusion and poverty. In addition, Latvia has an aging and shrinking population, and it needs to increase labor participation and productivity to sustain high rates of economic growth over the medium-term," said Murthi. The current tax and benefit system is not supportive of the reintegration of the long-term unemployed into the labor force: minimum income recipients lose one lat of benefits for each additional lat they earn. A more gradual phasing out of benefits would be more effective, believes the World Bank.

 

Vinkele said that reforms were needed to not only the benefit system. She believes that education and healthcare systems are also in need of important reforms, and that the social crisis is not being paid sufficient attention in Latvia. In the next two to three years, major challenges await Latvia in the social protection area, which will require nationwide cooperation to be overcome, not just the Welfare Ministry's efforts.

 

"Looking forward, the study points to a number of policy options for enhancing the tax-benefit system and employment programs so that they can most effectively protect low-income individuals and help the out-of-work into jobs as labor demand recovers. Such policies can help form a basis for inclusive growth, and ensure the gains from future economic expansion to be broadly shared," said Emily Sinnott, World Bank Senior Economist and leading author of the study.






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