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Housing prices reverse dip in basic income support payments

Changes in the tax refund schedule reduced income support payments for many recipients, but the slump was temporary.

Käsi hamuilee seteliä lompakosta
File photo. In spite of employment gains, high housing costs have pushed many low income-earners in the Helsinki area to rely on basic income support. Image: Augustina Jämsä / Yle

Last year national benefits agency Kela paid out slightly less in income support than in 2018. However the decline is likely to be only temporary, as insecure jobs and the high cost of housing suggest that social assistance payments will rise once more.

Many unemployed persons depend on the income subsidy to make ends meet. But low-income earners increasingly lean on it to get by.

According to Kela data, last year the agency forked out 698 million euros in basic income support payments, down from 716 million in 2018. The decline proved to be an exception to a 14-year trend showing such payments generally increasing.

The main reason for the reversal appears to be related to a decision by tax authorities to change the timetable for paying out income tax returns. Instead of refunding all taxpayers for overpayments in December, the Finnish Tax Administration began paying out returns as early as August – 80 percent of taxpayers had an earlier than usual windfall.

Benefits cut for 85,000 households

That decision immediately affected social assistance payments. In cases where a tax refund was 50 euros or more, Kela would cut a similar amount from basic income support payments.

As a result, more than 85,000 households saw their benefit payments shrink last year. According to Kela’s statistics, it paid out 68 million in basic income support in July last year. However that figure fell to just 46 million in August when tax refunds hit taxpayers’ bank accounts.

Kela’s benefits manager Marja-Leena Valkonen drew a direct line between the decline in benefit payments and the new tax refund timetable.

"Tax refunds have affected the number or recipient households, specifically in August, September and December," she declared.

Statistics suggest that the decline in income support payments was not permanent: while they fell from August onward, they once more spiked, nearly reaching the level of the previous year.

Paula Saikkonen, a senior researcher with the National Institute for Health and Welfare, THL, speculated that the drop in income support payments will not last – despite positive employment data.

Housing a major factor in demand for income support

There has been a rapid reduction in the number of unemployed jobseekers. They now number 700,000 fewer than in summer 2015, when unemployment was at its worst in recent times. In theory, that should reduce the number of people turning to what Kela calls "last-resort social assistance".

According to Saikkonen, things just do not add up.

"This has been a source of bewilderment for some time: that growth has continued and the curve should be clearly falling. But they do not appear to be in significant decline," Saikkonen added.

She speculated that one reason for the trend could be hiding in housing costs. She noted that figures show that 40 percent of basic income support is spent on housing. Regional differences are great, but for low-income earners living in the Helsinki region, Kela’s housing benefit is not enough to cover rent, so recipients use basic income support to make up the shortfall.

Because of this, Saikkonen predicted that the need for the basic income benefit would not fall at the same speed as unemployment.

"I wouldn’t venture to predict a radical fall in the number of basic income support recipients. I believe that we’ll see about the same numbers as last year," she continued.

The researcher said however that this year's August tax refund would not necessarily bring the same unpleasant surprise to tens of thousands of households in the future.

She noted that the expanded use of the incomes register this year would mean that tax officials receive taxpayers’ income information in advance and that their tax rates would be correct. This could be especially beneficial for part-time and gig workers.

Basic income support left intact

A report published by the Finnish Federation for Social Affairs and Health, Soste, in early February, indicated that basic income support provides an important safety net for many.

Additionally, cuts and index freezes applied to other benefits have caused people to rely on it even more. It is one of the few benefits that has not been reduced between 2010 and 2020.

The level of basic income support increased by six percent in 2012 and annual index increases linked to the cost of living have been applied to it over the years.

When responsibility for paying basic income support was transferred from municipalities to Kela in 2017, uptake of the benefit began to increase. Households that had not previously used it began to apply for it.

One reason for the change is that people in smaller municipalities may have been reluctant to come face to face with familiar officials when applying for social assistance.

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