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Report: More people using income support to meet benefits shortfall as poverty rises in Finland

Benefits account for 90 percent of the annual income of a quarter of a million people in Finland.

Kolikoita kädellä.
Image: Henrietta Hassinen / Yle

More people in Finland are living in poverty as a direct result of the current administration’s efforts to reform the unemployment benefits and tax systems, claims a new report by the National Institute for Health and Welfare (THL).

On Tuesday the THL published the results of a recent analysis of the level of basic social benefits, titled "Evaluation of the adequacy of basic social security 2015–2019". The document mentions that it is possible to see the impact of the government’s activation model in the reduction of benefits.

According to the national benefits agency Kela, which administers unemployment benefits, by the end of 2018, 40 percent of recipients of labour market support and basic unemployment allowance received lower benefit payments as a result of the model, which aims to prod unemployed people to find work.

"Many of the legislative reforms during this government have eroded basic social security. Index freezes and cuts have affected unemployment benefits, housing support and home care allowances, for example. The level of basic social security has declined for many," THL research head Jussi Tervola said.

Poverty on the rise

According to the report, legal reforms implemented between 2015 and 2019 have eroded the incomes of single parents and people living alone relative to other groups in society.

It also revealed that the number of people relying on benefits to live has increased since the previous analysis. Researchers found that the number of people living on benefits increased by nearly 40,000 from 2013 to 2017. This means that there are currently over half a million people in Finland (510,000) for whom half of their annual income comes from social security.

At the same time, officials have seen an increase in the number of people for benefits account for 90 percent of their annual income. They now number 250,000-30,000 more than the last review.

Tervola said that poverty in Finland has increased. In terms of the number of low income households, the current administration’s benefits and taxation policies have resulted in a 0.7-percent increase in poverty – if employment impact is discounted. He noted that the change may sound small, but in real terms it affects thousands of people.

"Some 38,500 people have slipped below the low-income limit. Whether that is a lot or a little depends on whom you ask,” he commented.

In spite of the findings, the report did not recommend a suitable level of basic social security.

“In the final analysis that is a political question. We are providing some metrics, but we cannot say directly what the right level of benefits would be,” Tervola declared.

Benefits don’t go far enough

The THL assessed the current level of benefits in relation to a set of reference budgets for a minimum level of consumption compiled by Helsinki University’s Centre for Consumer Society Research.

"The central finding of the report is that the level of basic benefits is still inadequate for reasonable minimum-consumption budgets, except for pensioners and for students with loans," Tervola noted.

The people most likely to suffer from the shortfall between income and expenditure are the people dependent on unemployment benefits as well as the minimum sickness and parental benefits as well as recipients of the child home care allowance, the report concluded. Recipients of study grants also struggled, unless they could fall back on student loans. Recent changes have meant that students have become more reliant on loans than benefits for financial support.

On the other hand, the report concluded that even the minimum pension benefits are enough to ensure that retirees can cover reasonable consumption. However the report noted that with respect to pensioners, their sample budget was based on basic social security.

Tervola pointed out that the calculus did not account for increases in customer health care payments or the impact on incomes of changes in compensation for medication. He said that the net effect of the analysis for the elderly is that it paints too rosy a picture of their ability to get by.

"In this report, we have focused on the income side and not on the expenditure side," Tervola added.

Time to talk about income support

The authors of the report stressed that the role of income support in Finland’s benefits system.

"The role of income support as a stop-gap for basic social security has increased considerably since 2015, [with people using] up to 100 euros a month [in this way]," Tervola explained.

The report observed that for some benefits recipients, income support appears to have become a permanent part of their incomes. Kela statistics indicate that 37 percent of people receiving labour market support also received income support in 2017.

According to the THL, the situation becomes problematic given that income support is by nature a very different kind of support than other basic social benefits. Applying for income support requires more due diligence than basic social security and it is affected by the income and means of the entire household.

"On the other hand, basic benefits are personal. During the current administration we have moved more towards the income support direction." Tervola remarked that the report would stimulate discussion about the role of income support.

"Is the intention for income support to be an extension of benefits for low income groups? Do we want to expand the role of income support? It was originally intended to be a kind of last- and very temporary resort," Tervola pointed out.

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