Quality of public finances: increasing the efficiency of social transfers in the EU

Ministers discussed the reforms needed to deliver more efficient and sustainable welfare systems in the European Union. EU Member States spend between 13% and 33% of their GDP on social expenditures. It therefore represents a major share of total government expenditures. One of the most urgent challenges facing the Member States is to deliver greater efficiency of social transfers spending given the scale of social spending in Member States budgets and the challenges ahead such as globalisation and demographic change.

The discussion was launched with a keynote speech given by Professor Tony Atkinson from Oxford University, an acknowledged expert on welfare state reforms, who underlined that: The welfare state is best thought of ... as an institution in a continual state of evolution, constantly facing new challenges, recognising shortcomings, and attempting to face new needs ... The EU has proved fertile ground for policy learning.

The Finance Ministers agreed that increasing the efficiency and effectiveness of social expenditures will have a crucial impact on Europe's capacity to maintain the high achievements of the European social models. Member States have over the last decade undertaken significant efforts to reform their social welfare systems. Ministers emphasized the following issues:

• A more efficient use of the budgetary resources deployed for social spending contributes to meeting the obligations under the Stability and Growth Pact, and can also contribute to better fulfilling citizens demands for an improved quality of public services.
• Comparisons of efficiency in areas such as spending on pensions, health care benefits, unemployment benefits and family and child benefits reveal significant differences across Member States.
• Outcomes in terms of envisaged social objectives can be improved in many cases, but there is no single blueprint for improving efficiency and Member States have adopted different approaches to reform. Ministers agreed that cross-country comparisons and the exchange of best practices can be very useful in order to develop national strategies.
• Reforms of the social welfare systems need to take a broad view. There are strong synergies between modern social, education and labour market policies. Lifelong investment in education and human capital enhances employability, social inclusion and long-term fiscal sustainability.
• Public budgets should be assessed on the basis of outcomes and not just evaluated according to the amount of money spent. The Ministers considered that greater output-orientation of public budgets, improved use of performance information, spending reviews or external review bodies can help improve cost-effectiveness and sustainability of social spending. Those instruments can be important tools for decision-making in order to move the focus away from spending towards actual achievements.

Finance Ministers and the Commission agreed to take these themes forward as a priority and to come back to the issue at their next meeting in May.