Reforms of minimum income schemes can help address poverty in the EU at a relatively low cost

According to the results of a new JRC study, the contribution of current minimum income schemes to reducing poverty is limited in some EU countries, and effective action could be taken at relatively low cost. Eradicating extreme poverty in the EU, that is lifting everyone above two-thirds of the poverty line, could be achieved by increasing current spending on such schemes by an amount equivalent to an additional 0.22% of the EU’s GDP.  On the other hand, lifting everyone above the poverty line would cost an additional 0.95% of EU GDP, or EUR 133.3 billion. This is 2.2 times the current expenditure at the EU level on minimum income benefits.

Using the tax-benefit microsimulation EUROMOD model, JRC researchers evaluated the existing schemes of all 27 Member States, their potential reforms by extending their adequacy and coverage, and their impacts on government expenditure, number of beneficiaries, and household incomes. 

This research informed the European Commission’s proposal for a Council Recommendation on adequate minimum income ensuring active inclusion, in which it called on Member States to modernise their minimum income schemes as part of the ongoing efforts to reduce poverty and social exclusion in Europe and promote employment. The headline target is reducing the number of people at risk of poverty by at least 15 million by 2030, including at least 5 million children. The headline target on employment is to reach the goal that at least 78% of the population aged 20 to 64 should be in employment by 2030.

The key aspects of JRC analysis are part of the Staff Working Document accompanying the Commission proposal.  The proposal also provides guidance on how to improve the effectiveness of minimum income schemes through different means: promoting take-up, coverage and adequacy of minimum income, ensuring that eligibility criteria are more transparent and non-discriminatory, improving access to enabling services like childcare and to labour markets for those who can work, and others.

The JRC technical report The effectiveness of Minimum Income schemes in the EU provides details about the methodology applied, data used, simulations performed and results obtained.

Assessing impact of policies

The European Commission also presented today a Communication on better assessing the distributional impact of Member States’ policies. Among others, distributional impact assessments can help to assess the effects of public policies on people’s income.  The Communication offers guidance on how to design policies making sure that they contribute to addressing existing inequalities while taking into account their impact on different geographical areas and population groups, such as women, children and low-income households.

The European Commission is inviting Member States to use microsimulation models for estimating the effects of policy changes (notably, tax and benefit policies) on household incomes, and among them, underlines the usefulness of EUROMOD, the tax-benefit microsimulation model maintained by European Commission’s Joint Research Centre and available for all Member States. The Commission and the JRC will further support Member states in setting up or developing their impact assessments, including by supporting mutual learning and exchanges of best practices and making available and developing further the microsimulation model. The JRC will also provide training on the use of EUROMOD.