EUROMOD I-CUE FEASIBILITY STUDY

Transcription

1 EUROMOD I-CUE FEASIBILITY STUDY I-CUE Feasibility Study SLOVENIA (2005 TAX-BENEFIT SYSTEM) Mitja Čok, Nataša Kump, Boris Majcen August 2006

2 About I-CUE I-CUE (Improving the Capacity and Usability of EUROMOD) is a EUROMOD-related project that started in May 2005 and is supported by the FP6 Research Infrastructures Action as a Design Study. The aim of I-CUE is to re-design and up-grade EUROMOD in the light of: enlargement lessons learned from operating and using the first, prototype version. The main goals are to start the process of expanding EUROMOD to cover the 10 New Member States and to make EUROMOD easier to use, especially when it is dealing with 25 systems and datasets. This project involves the European Centre and the Institute for Social and Economic Research (ISER) at the University of Essex. The European Centre is responsible for establishing contacts and working relationships in the 10 New Member States in order to explore the feasibility of bringing them into EUROMOD. ISER is responsible for improving the model in a technical sense so that it is easier to use and to integrate the new countries. The main task of the Feasibility Studies is to lay the foundations for integration of the New Member States in EUROMOD, alongside the EU15, and therefore they all include: 1) key features of national tax-benefit systems; 2) identification of appropriate data requirements and data sources; 3) consideration of issues relevant for modelling each tax-benefit instrument (tax evasion, non take-up of benefits, etc.). For more information, see: and

3 I-CUE Feasibility Study SLOVENIA Mitja Čok, Nataša Kump, Boris Majcen August 2006 Author information: Mitja Čok, University of Ljubljana, Faculty of Economics. Nataša Kump, Institute for Economic Research, Ljubljana. Boris Majcen, Director, Institute for Economic Research, Ljubljana. 1

4 Table of Contents 1. INTRODUCTION AND OBJECTIVES THE SLOVENIAN TAX-BENEFIT SYSTEM TAXES Direct taxes Social security contributions (Indirect taxes) BENEFITS Contributory benefits Non-contributory benefits (Other benefits and in-kind transfers) INPUT DATASET AND OTHER DATA REQUIREMENTS INPUT DATASETS DATA REQUIREMENTS FOR THE SIMULATION OTHER DATA-RELATED ISSUES Definition of base year of the simulation Net-to-gross conversion Documentation of data used for simulation Tax evasion / benefit non-take-up THE Existing Microsimulation Model for Slovenia INPUT DATA AND DATA RELATED ISSUES STRUCTURE OF THE MODEL TYPES OF INCOME INCLUDED IN THE MODEL Income subject to PIT Income not subject to PIT SOURCES AND LITERATURE: ANNEX

5 1. INTRODUCTION AND OBJECTIVES Any proposed changes to a tax-benefit system demand an appropriate approach to evaluate their consequences not only at the level of individuals or households but also at the level of the whole society. Policy-makers need to answer questions about who is going to benefit and lose from the proposed changes and what are their consequences for the government budget. One possible approach for studying different taxation-benefit policies is to calculate the taxes and benefits under different policies for selected or typical types of households, for example a married couple with two children at different levels of income gained from employment. However, this approach is limited because such selected households represent only part of a society and the real pattern is much more complex; households are composed of different numbers of people, with different socio-economical characteristics and with complex structures of differently taxed types of income. A more informative approach is to construct a micro-simulation tax-benefit model. Taxbenefit models are based on a sample of micro data, representing the entire population and they capture a wide socio-economic range of households or individuals without needing to define the typical unit of observation. Their biggest advantage is that they allow simulations for a broad range of tax-benefit policies for the whole population or for selected samples of those to whom the measures apply, classified by individual or household characteristics (gender, age, household type etc.). Gains and losses of selected tax-benefit policy measures, their redistributive potential and the aggregate effects on the fiscal system can be estimated. Besides these advantages, tax-benefit models also have some weaknesses: the quality of their results depends on the quality of databases on which they are based and, last but not least, their construction and maintenance is time consuming and (potentially) costly (Verbist, Van den Bosch and Cantillon, 2000). Micro-simulation models have been constructed in most countries in Western Europe and in many OECD member states (Redmond, Sutherland and Wilson, 1998). International comparisons based on different models are difficult due to the different assumptions built in particular national models (Sutherland and Callan, 1997). Therefore, a Euro-wide integrated tax-benefit model named EUROMOD was built at the EU level with the aim to secure a comparison for all EU countries (so far the systems of the EU-15 are incorporated) (Sutherland, Immervoll and O Donoghue, 1999, Sutherland, O Donoghue and Utili, 1999). The purpose of the present feasibility study is to present a tax and benefit system valid in Slovenia, together with the first assessment of the possibility of building a Slovenian tax/benefit prototype model that can be integrated into EUROMOD as well as of the availability of the data. The feasibility study focuses on social security contributions, direct taxes and cash benefits that are currently part of the standard EUROMOD-15 and not on indirect taxes and benefits in kind (which are currently additional features to be worked on). EUROMOD is a static model, taking into account only over-night-effects of policy changes and not behavioural changes. Therefore the focus of the feasibility study is on static microsimulation. This feasibility study should be used as the first step towards building a fully 3

6 developed tax-benefit micro-simulation model for Slovenia taking full account of relevant specificities of the country. It contains: 1. A detailed list of social and fiscal policy instruments and their potential implementation in a simulation model; 2. A short description of the existing micro-simulation model for Slovenia together with the input data and data-related issues. The work already done could be of value because of the procedure used for grossing-up of different types of individual s income subject to personal income tax; 3. A summary presentation of recommendations regarding the possibility of simulation of particular tax and benefit instruments. Fiscal policy instruments refer to the rules valid for the tax year 2005; 1 meanwhile social policy instruments refer to the year A new micro-simulation model for Slovenia will form an important part of the models planned to be developed and used for the assessment of the complex micro (at the individual level and/or the level of the household), meso and macro effects of the economic and social reforms that the Slovenian government wants to launch in the very near future. Namely, on 7 October 2005 the Slovenian government released the blueprint for economic and social reforms as drafted by more than 200 members of the reform committee. One of the main elements of the reform package is the flat tax. Following the proposal of the Reform Committee, all income of natural persons would be taxed at a new 20% rate, with the same rate applying to the VAT, adding that a tax reform must be accompanied by a reform of social transfers. The micro-simulation model will be crucial for the simulation of the effects occurring with the proposed changes in the tax and the necessary changes in the benefit system. Because of its static nature and impossibility to model the behavioural responses of individuals and also firms, a dynamic general equilibrium model with the overlapping generations will also be developed. The final aim is to also develop an econometric model of labour supply reactions to policy reforms built into the basic micro-simulation model and to link it with the general equilibrium model. 1 Tax is reported for the previous year. 4

7 2. THE SLOVENIAN TAX-BENEFIT SYSTEM 2.1 TAXES From the very beginning of the transition process, Slovenia has been reforming its tax system. The personal income tax and corporate income tax were introduced in VAT and excises replaced the retail sales tax (and old excises) on July 1, Thus, the tax system has undergone a thorough reform; at the same time, the social protection system also underwent important changes: of particular importance was the reform of the pension system, which was completed in December 1999, when the Parliament passed a new Pension and Disability Act, effective from January 1, In the following section we describe only taxes paid by individuals, since business and corporate taxes are outside the scope of a household tax-benefit micro-simulation model Direct taxes Personal income tax (PIT) 2 The procedure for calculating the annual PIT is as follows: Annual income subject to tax (1) - Expenses connected with certain types of income (2) - Employee compulsory social security contributions (3) = Intermediary tax base - Standard allowances (4) - Special allowances (5) = Tax base (subject to the annual PIT progressive schedule) => annual PIT (6) => PIT difference = annual PIT - advance PIT paid during the year (7) This procedure refers to all types of income subject to tax, but: interest, capital gains and dividends, which are taxed on a schedular basis with a 20% flat tax (without any allowances and deductions). Annual income subject to tax The PIT is levied on eight categories of income (on the worldwide basis) subject to tax defined as follows: 2 The PIT rules refer to the year

8 (1) Income from employment; (2) Income from private business and professional activity; (3) Income from agriculture; (4) Income from property; (5) Capital gains; (6) Other income; All these categories of income are taxed with the PIT on an annual basis. The annual tax return for the calendar year, which is also the tax year, must be submitted to the Tax Administration by all taxpayers who have received any type of income subject to tax. Each taxpayer is treated individually. There is no taxation of any kind of fiscal household. In his tax return, a taxpayer provides information on all types of income subject to tax, amounts of advance PIT paid during the year, employee social security contributions and tax allowances. Expenses connected with certain types of income Expenses are assigned to cover costs that arise in the process of earning some types of income (for example income from temporary contractual work). Standardised expenses are set by law as a share of the gross income (the share varies from income to income, it is 10% for income from temporary contractual work and 40% for income from rent). Employee compulsory social security contributions For the great majority of the taxpayers, these are employee compulsory social security contributions, paid on a gross wage, at a rate of 22.1%. Standard allowances Standard allowances are available to those taxpayers who fulfill specific conditions. They are set by law; once a year in November they are adjusted to inflation (retail price index). Standard allowances are used for the final annual calculation of the PIT and during the year when the advance PIT for certain types of income is computed in this case only 1/12 of their value is taken into account. Personal allowances for the tax year 2005 are: 1. General allowance; 564,400 SIT 3 (2,355.2 EUR), granted to all taxpayers. 2. Disabled person s allowance; 3,441,500 SIT (14,361.1 EUR), granted to all taxpayers who are heavily disabled. 3. Student work allowance; 1,200,000 SIT (5,007.5 EUR) granted to taxpayers with income deriving from temporary contractual student work. 4. Seniority allowance; 275,300 SIT (1,148.8 EUR), granted to all taxpayers above 65 years. 3 SIT stands for Slovenian Tolar. 1 EUR = 239,64 SIT. 6

9 5. Pensioner allowances (tax credit): calculated PIT is reduced by the amount equal to 14.5% of the individual pension. 6. Family allowances for dependent family members: 6.1. Family allowances for children; 474,900 SIT (1,981.7 EUR) for the first child, (additional SIT [172.3 EUR] for the second, additional SIT [890.5 EUR] for the third, additional 385,500 SIT [1,608.7 EUR] for the fourth, etc.), and 1,720,800 SIT (7,180.8 EUR) for a disabled child Family allowances for other dependent family members; 474,900 SIT (1,981.7 EUR) for any other dependent family member. 7. Allowance for self-employed professionals: self-employed professionals in the field of culture and self-employed journalist are entitled to an annual allowance equal to 15% of their income, but the allowance cannot be higher than SIT (2,441.2 EUR) per year (this amount is not subject to annual adjustment to inflation). Special allowances Special allowances depend on taxpayer s expenses on additional pension insurance and selected purchases. The tax base 5.1. Special allowance for additional pension insurance: a taxpayer can deduct insurance premium paid for additional voluntary pension insurance up to 5.844% of his gross wage, but the allowance cannot be higher than the amount set by law (549,400 SIT i.e. 2,292.6 EUR in 2005) Special allowance for selected expenses: this allowance is defined as a sum of a taxpayer s expenses for selected purchases such as the acquisition of books or government securities. The sum of these expenses (special allowance) can be deducted by up to 2% of the intermediary tax base plus an additional 2% for interest paid on housing loans. The tax base is taxed according to a progressive annual tax schedule, which contains five tax brackets with marginal tax rates of 16%, 33%, 37%, 41% and 50% The annual PIT schedule is once a year in November adjusted to inflation (retail price index). 7

10 Table 1: Annual PIT schedule for tax year 2005 Tax base Tax bracket From To Tax 1. 0 SIT 1,300,000 (5,425 EUR) 16% 2. 1, SIT (5,425 EUR) 2, (10,599 EUR) 33% 3. 2, SIT (10,599 EUR) 5, (21,449 EUR) 37% 4. 5, SIT (21,449 EUR) 10, (43,106 EUR) 41% 5. 10, SIT (43,106 EUR) 50% As already noted, interest, capital gains and dividends are taxed separately with a 20% flat tax (without any allowances and deductions). PIT difference During the year, all types of income are subject to advance PIT. If the sum of advance PIT exceeds the annual PIT, the difference can be requested from the Tax Administration. Can be simulated. Payroll tax Payroll tax is levied on employers who disburse wages. The tax schedule contains four brackets and a progressive tax scale with 0%, 3.8%, 7.8%, and 14.8% tax rates. This tax is not applied to the self-employed. The tax schedule is presented in Table 2: Table 2: Payroll tax schedule in 2005 Tax base Tax bracket From To Tax 1. 0 SIT 165,000 SIT (688 EUR) 0% ,001 SIT (688 EUR) 400,000 SIT (1,669 EUR) 3,8% ,001 SIT (1,669 EUR) 750,000 SIT (3,130 EUR) 7,8% ,001 SIT (3,130 EUR) 14,8% A new law on payroll tax from December 2005 gradually abolishes the tax over the next three years (till 2009). Can be simulated. 8

11 Tax on contractual work This tax is applied to contractual temporary work. The tax is levied at a flat rate of 25% on gross payments. Can be simulated. Tax on lottery winnings Tax applies to the value of lottery prizes and is paid by individuals who win lottery prizes. The tax rate is 15%. Excluded cannot be simulated no suitable data. Tax on gambling Tax on gambling is paid on the net value of prizes awarded. The two rates on gambling are 5% and 18% and are applied depending on the type of game. Excluded cannot be simulated no suitable data. Inheritance and gift tax Inheritance and gift tax applies to transfers of property. The tax is paid by an individual who is the testamentary heir or the heir at law and by the recipient of a gift. Taxpayers are divided into four categories according to their relationship with the deceased or donor. The tax rate varies from 5% to 30%. Excluded cannot be simulated no suitable data. 9

12 Property tax Property tax is levied on urban premises such as buildings and parts of buildings including apartments, garages, second homes and boats that are not used for business purposes. The taxpayer is an individual who is the actual or beneficial owner, the taxable base is ascertainment value according to special criteria issued by the Government. The tax rate depends on the type of construction and its value. Excluded cannot be simulated no suitable data Social security contributions There are four types of compulsory social security contributions, which are paid both by employer and employee: (1) for pension and disability insurance (they are paid to the Pension Insurance Fund), (2) for health insurance (they are paid to the Institute of Health Insurance), (3) for unemployment insurance (they are paid to the central government), (4) for maternity leave insurance (they are paid to the central government). Within the system there are many varieties with regard to these contributions, which depend on the socio-economic status of the insured person. The most important are the following: Social security contributions for employee If a person is an employee (in a dependent job), the base for contributions is the amount of the gross wage, which includes gross leave pay, fringe benefits and remuneration of expenses related to work above a certain threshold. The rates of contribution are presented in Table 3. Table 3: Rates for social security contributions Employee (%) Employer (%) Pension and disability insurance Health insurance Unemployment insurance Maternity leave insurance Occupational disease and employment injury insurance All The contributions for employees are paid as a withholding tax by employers, who deduct them from wages. Social security contributions for self-employed The self-employed are supposed to pay both employee and employer social security contributions at the rates given in Table 3. The base for contributions is their profit (revenue 10

13 minus expenses), but it cannot be less than the national minimum wage (122,600 SIT i.e EUR per month in December 2005). Social security contributions for people receiving social security benefits The social security contributions for pensions and pension benefits are paid at the rate of 5.76% on a grossed pension, for unemployment benefit at the rate of 37.47% on a gross amount of unemployment benefit and at the rate of 12.92% for unemployment assistance. Can be simulated (Indirect taxes) 4 Value added tax VAT is charged and paid on supplies of goods and performed services within the territory of Slovenia and the importation of goods into the EU. The standard VAT rate is 20%. A reduced rate of 8.5% applies mostly to foodstuffs, public passenger transport, pharmaceutical products, medical equipment, hotel accommodation, books, newspapers and periodicals. The Value Added Tax Act specifies several categories of goods and services that are exempt from VAT, such as medical services, childcare, etc. Motor vehicle tax Motor vehicle tax is paid at the purchase of a new vehicle, beside the VAT. The tax rate depends on the value of a vehicle. Beside this tax, there is an annual motor vehicle registration fee. Excise duties Excise duties are levied on tobacco products, alcohol and alcohol beverages, mineral oils, electricity and gas. Tax on insurance premiums The tax is levied on insurance premiums and is payable by insurance companies and other legal providers of insurance services within Slovenia. The tax rate is 6.5%. Immovable property transfer tax This tax is levied on transfer of immovable property, if VAT has not been charged on such transfer. It is applied to the market value of immovable property transferred. In general, the 4 Indirect taxes are not part of the standard EUROMOD. 11

14 taxpayer is the seller of the immovable property. The tax rate is 2% of the market value of the transaction. Simulation of indirect taxes paid by households (except for immovable property transfer tax and motor vehicle tax) is possible using the expenditure and quantity information from the household survey. However, assessing the distributional and/or revenue consequences of reforms of the indirect tax system is of limited value without also considering how households adjust their expenditure patterns in response to price changes following the reform. 2.2 BENEFITS 5 In Slovenia, social security benefits can be divided into two different groups. The first category consists of contributory benefits, which are related to employment and are financed via employer and employee contributions. Entitlement to these benefits depends on having met certain conditions (such as retirement, unemployment, etc) and claimants contributory records. The second group consists of non-contributory benefits. These benefits depend on certain contingencies (such as parenthood), do not require contributions to have been made and are financed through the general budget. Non-contributory benefits can be mean-tested, and subject to an income test, or non means-tested, and therefore depending on specified contingency. Means-tested benefits are awarded following a test of the claimant s family income and are designed to raise incomes to some minimum standard. Benefit entitlement is reduced if family incomes increase. Non means-tested benefits are granted on the basis of a specified contingency, such as birth of child, and are not subject to an income test. Contributory benefits are provided by semi-autonomous entities created for that purpose, while non-contributory benefits are financed out of the central budget. Unemployment compensation and assistance are financed through unemployment insurance contributions and the central budget. The activities of the national Employment Service of Slovenia are financed mainly by state subsidies. The employers and the employees are paying some contributions for unemployment insurance (0.2% of the gross wages for both), which are collected to the state budget. In addition to that, however, the state budget is financing the difference between the contributions and the real expenditures, which means about 90% of the total costs (Axelsson, 2002). Health care benefits disbursed by the National Health Insurance Institute (NHII) are in the largest part financed by current collected contributions from employers (6.56% of the gross wage), employees (6.36% of the gross wage), self-employed and others (approx. 80% of all revenue in 2004). These contributions are collected to a fund controlled by the NHII. A much smaller source of revenue (approx. 18% in 2004) for the NHII are transfer payments from other social security funds, communities and the state budget. Non-tax revenue, capital income and received donations represented the remaining 2% of the NHII s 2004 income. 5 This section draws heavily from Stropnik et al. (2003). 12

15 The financing sources for the Institute for Pension and Disability Insurance (IPDI) are contributions for pension and disability insurance. These contributions are paid by the employer and employee to a fund controlled by the institute. The current rates are 8.85% of the gross wage for employers and 15.5% of the gross wage for the employees. In 2004, substantial state transfers, which amount to 28.7% of the total revenues of the IPDI, were also committed to insurance-type benefits. Most of the family benefits are financed through general taxation, but maternity/parental benefits are insurance-based and financed by contributions that are paid by employers and employees (0.2% of the gross wages for both). These contributions are collected to the state budget. However, the contributions cover only a small proportion of total expenditure on maternity/parental benefits; the rest is paid from general government revenues. Collected contributions represented only some 13% of total expenses for maternity leave wage compensation in The social assistance benefits are financed through the central budget Contributory benefits Benefits due to temporary incapacity for work In case of temporary incapacity for work, the general practitioner (or, where applicable, the NHII s medical board) has the authority to grant sick leave with wage compensation. Wage compensation during sickness is paid by the CHI from the 31st day of absence from work (prior to that by the employer) and depends on the physicians (or, where applicable, the NHII s medical board) assessment of the state of sickness. There are no waiting days for this benefit. Although in other cases the benefit has a limited maximum set of duration, in case of transplantation of organs or tissues for the benefit of others, donation of blood, caring for immediate family members, isolation or escort and certain employment injuries, wage compensation is paid by the Compulsory Health Insurance from the first day of absence from work. If absence from work is longer than one year or if there is no prospect of recuperation, the insured person can be referred to the invalidity board at the IPDI. The amount of wage compensation depends on the insured person s average monthly salary in the calendar year prior to sick leave, the cause of absence and valorisation method. It amounts to 100% of the average monthly salary in case of disabled soldiers and civil invalids from wartime, occupational disease, employment injury, transplantation of tissues or organs for the benefit of others, donation of blood and quarantine. It drops to 90% if the insured person is absent from work due to illness, or 80% in case of non-employment related injuries, nursing of a close family member, escort of others, or during the period of qualifying for rehabilitation of a handicapped child at home. In any case, it is not lower than the guaranteed wage 6 or 6 The guaranteed wage used to be the lowest possible pay for a full-time job in Slovenia. It has lost its connection to the labour market, but remained a basis for determining the level of some social benefits, without its name being adapted to its only retaining function. Until mid-1997 the government had a 13

16 higher than the insured person s usual salary. Wage compensation during temporary absence from work is subject to personal income tax. Excluded cannot be simulated no suitable data. Travel costs, daily allowances and transport are compensated up to the cost of traveling to the nearest service provider. This applies only if the patient has to travel to another city for treatment or diagnostic procedures. If such medical treatment takes longer than 12 hours, the insured person is entitled to reimbursement of costs of food and accommodation in the amount determined by the NHII. Excluded cannot be simulated no suitable data. Death benefits NHII provides also funeral costs refund, payable to the person who paid for the funeral, provided that the deceased was employed (or insured). Funeral costs refund amounts to 80% of the average inevitable funeral costs in Slovenia. Death benefit, payable to family members supported by the deceased (who was employed or insured), ranges from 100% to 150% of the guaranteed gross wage. The exact amount is established by NHII. Funeral costs and death benefit are paid as one-time cash benefits. Excluded cannot be simulated no suitable data. Maternity (parental) leave Eligibility to wage compensation during parental leave is held by persons who were insured for at least 12 months in the last three years before the start of the individual part of parental leave. The total leave associated with childbirth in Slovenia (parental leave) consists of: a. 105 days of maternity leave; discretionary right to adjust the guaranteed wage level, and during that period the real value of the guaranteed wage decreased considerably. It amounted to 43% of the average gross wage in 1991 and to only 24% in Since mid-1997 the guaranteed wage has been adjusted once a year according to the consumer price index (as a rule, by 85% of the rise in consumer prices). Currently, the guaranteed wage is at the level of 55,853 SIT app. 20% of the average gross wage. 14

17 b. 260 days of a full-time child care and protection leave (520 days if taken as a half-time leave combined with part-time work, i.e. half of the normal working hours per day), which can be used by either the mother or the father. If the mother is a student below the age of 18, one of the grandparents is allowed to use this leave. The parents are allowed to use part of the child care and protection leave (up to 75 days) as long as the child is below eight years of age; c. 90 days of paternal leave. Fathers are obliged to use at least 15 days during the maternal leave, while the rest of the 75 days can be used until the child is eight. d. Child care and protection leave is extended by 30 days if at the birth of a child - parents already care for at least two children below the age of eight, by 60 days if they care for three children, and by 90 days in case of four or more children. e. In case of multiple births, child care and protection leave are three months longer for each additional child; in case of the birth of a handicapped child it is prolonged until the child is 15 months old; in case of a premature birth it is prolonged for as many days as pregnancy was shorter than 260 days. The rights on the basis of a premature birth, birth of more children, birth of a handicapped child and the presence of two or more other children below age eight may be added together. Wage compensation during maternity leave and child-care and protection leave amounts to 100% of the average monthly gross wage of the entitled person during the 12 months prior to the leave. The minimum wage compensation amounts to 55% of the minimum wage and the maximum compensation is 2.5 times the average wage in Slovenia (the upper limit is not applied for the compensation during the maternal leave). In case of unused child-care and protection leave, there is a possibility to obtain the non-received amount of wage compensation (up to five monthly wage compensations) through payment for childcare services, payment of the housing rent or a housing purchase. During the first 15 days of paternal leave, the father is entitled to 100% wage compensation, while for the rest of the 75 days he will only be paid the social security contributions based on the minimum wage. One of the parents taking care of a child below age three or a seriously handicapped child, can have social security contributions paid from public sources for the difference between the fulltime working hours and the hours worked on a part-time basis. The contributions are based on the minimum wage. The hours worked must be equal or longer than half the number of fulltime working hours. Wage compensation during parental leave is subject to income tax. Included as variable in HBS. Cannot be simulated no suitable data. 15

18 Pensions and other benefits paid by IPDI Old age pensions The 1999 PDIA defines eligibility for old-age pensions. The full pensionable age is set at 63 for men and 61 for women. This means that insured persons retiring prior to the full pensionable age receive penalties, i.e. lower than normal or even negative accrual rates, and persons retiring after the full pensionable age receive accrual rates which are higher than the normal accrual rates. There are numerous exemptions to the penalty rule. However, it has to be stated that retirement prior to full pensionable age is also conditional on the accumulation of a sufficient number of qualifying years. Thus, a person must accumulate at least 40 pension-qualifying years these consist of (a) years of service, i.e. years during which contributions were actually paid; (b) purchased periods, i.e. insurance years which could be purchased ex post for university studies, military service etc. Also, the employer could purchase a limited number of years for the employee; (c) special qualifying periods, which is credited (d) added qualifying periods, i.e. period which is relevant for achieving eligibility conditions, but is not relevant for the calculation of one s pension. These include (non-purchased) years of university study, military service etc. The sum a+b refers to the insurance period, and the sum a+b+c refers to the pensionqualifying period. The pension is calculated as a percentage of the pension base, which is simply the best 18- year average of net wages. The pension is then computed using this pension base, accrual rates and the pension-qualifying period. Thus, for men the pension is computed as 35% of the pension base plus 1.5% of the pension base for each additional year of pension-qualifying periods. Net pension is subject to income tax, but due to pensioners tax credit and seniors tax allowance most of pensions remain untaxed. Survivors pensions are pensions granted to family members of the deceased. Except for the spouse, which does not have to fulfill this condition, it is required for the other members that they were dependent on the income of the deceased. The spouse can receive a widow's pension, provided the age criterion is met (53 years); if the spouse was not an insured person, he/she could obtain a widows pension at the age of 48. Children can receive a survivors pension up to the age of 26, provided they annually submit an attestation of school attendance. The base for survivors pensions is the actual or computed pension of the deceased; the computed pension is relevant in the case that the deceased was still an active insured person. The computation of survivors pension is extremely non-transparent, particularly with regard to the widows pension. As a general rule, the amount of survivors pension is dependent on the potential beneficiaries and their sources of income. For example, if the spouse is the sole beneficiary and has no sources of income (and meets the age criterion), he/she is entitled to a widows pension amounting to 70% of the base. If the spouse already receives a pension (old-age or disability) he/she can at most receive a widows pension amounting to 15% of the base. His/her pension and the widow supplement cannot, however, exceed the average monthly pension in Slovenia, disbursed in the previous year. Similarly, a 16

19 cap exists on survivors pensions disbursed to children; the total amount disbursed to all children depends on the number of children, but cannot exceed 100% of the base. Survivors pension is subject to income tax. The same rules are in force as for old age pensions, except considering the number of beneficiaries. War veterans and farmers retire under special conditions (war and farmers pension). Invalidity benefits Disability disbursements cover a wide area with various benefits, which can be grouped in three areas: a. Disbursements for disabled insured persons who have completely withdrawn from labour force; these are recipients of disability pensions. Disability pensions are the most important type of disability cash disbursements and therefore, details will be given as follows: In principle, the granting of disability pensions depends on the cause of disability. In case of an occupational disease or employment injury, the insured person can obtain a pension regardless of his insurance period. However, if the cause of disability is illness or off-the-job injury, a sufficient insurance period is required. As a general rule, the insurance period must cover at least one third of the period from age 20 to the date of the occurrence of disability. The computed disability pension is still somewhat higher than the old-age pension for two reasons. First, there are no penalties for pensioning prior to full pensionable age (63 for men, 61 for women); second, the minimum disability pension is more generous it cannot be less than 45% of the pension base for men and 48% of the pension base for women. The pension base is calculated in the same way as old-age pensions. b. Disbursements for disabled insured persons, who have temporarily withdrawn from the active labour force and are temporarily unemployed; these are recipients of disability benefits. c. Disbursements for disabled insured persons who actively participate in the labour force, but receive partial compensation from IPDI; these are (a) persons in part-time jobs and (b) persons reassigned to new jobs. The former receive allowance for part-time work and the latter receive a reassignment allowance. Disability pension, disability benefits, allowance for part-time work and reassignment allowance are subject to income tax. Corresponding tax allowances and tax credits should be considered. Supplements provided by IPDI: a. attendance supplement for pensioners (old-age, survivor, disability) to whom the assistance and care by another person is indispensable, b. Pension support for pensioners (old-age, survivor, disability) with very low pensions and a pension-qualifying period less than 40/38 years, 17

20 c. disability supplement for the disabled (all insured persons). Supplements are not subject to income tax. Included as variable in HBS. Data on the size of pension and all pension benefits and supplements are included in the HBS database in the form of two variables. Cannot be simulated no suitable data Pensioner allowance for vacation Persons who qualify for old-age pension, survivor pension or invalidity benefits (that do not receive wage) are eligible to allowance for vacation. The amount of this benefit depends on the level and type of pension (or benefit). It is paid once a year. Included as variable in HBS. Cannot be simulated no suitable data. Unemployment benefits Unemployment wage compensation. This is a benefit for the unemployed that were employed for at least 12 months during the last 18 months prior to the termination of employment and are covered by unemployment insurance. The basis for determining the level of unemployment compensation is the 12-months average gross wage of the unemployed person prior to unemployment. The benefit level amounts to 70% of the basis in the first three months and 60% thereafter. The minimum benefit level is equal to the guaranteed wage net of contributions and taxes while the maximum level is three times the lowest possible unemployment compensation. The beneficiaries are paid health-, pension- and disability insurance. Length of provision: Insurance record Duration of the entitlement 1-5 years 3 months 5-15 years 6 months years 9 months Over 25 years 12 months Over 25 years and over age of months Over 25 years and over age of months Those unemployed who are older than 55 and are lacking up to three years until retirement have their pension and disability insurance contributions paid by the employment service until they retire. Unemployment compensation is subject to personal income tax. Unemployment assistance. This is a means-tested contributory benefit payable once the unemployment wage compensation has been exhausted. As an eligibility criterion, income per 18

21 family member over the last three months must not exceed 80% of the guaranteed wage and the family s social security must be endangered. It amounts to 80% of the net guaranteed wage. The beneficiaries have their health insurance contributions paid by the Employment Office. The length of provision is 15 months. In case of older unemployed lacking up to three years to retirement (and having minimum chances of getting a job) it can be prolonged until the fulfillment of the retirement conditions. Unemployment assistance is not subject to personal income tax. Included as a single variable in HBS. Cannot be simulated no suitable data. Social contributions up to full working time for parents of children under three One of the parents with a child up to three years, and working at least half-time, has the right to receive social security contributions up to full working time (based on the minimum wage) paid from the state budget. Excluded cannot be simulated no suitable data. Compensation for lost income due to care of child in need of special care One of the parents will be entitled to a partial compensation for lost income if he/she stops working or reduces working hours due to care of a child in need of special care. The compensation will be equal to the minimum wage (or its proportional part, depending on the working hours). Excluded cannot be simulated no suitable data Non-contributory benefits Family benefits Parental allowance is granted to persons who are not eligible for the insurance-based wage compensation during parental leave. Qualified is a mother with Slovenian nationality and permanent residence in Slovenia and not receiving any wage compensation. A child must be a national of Slovenia and the father must not receive any parental leave wage compensation. The father is qualified if the mother dies, abandons a child, is not able to live and work independently, or if she, during the period of entitlement, enters into employment or selfemployment. There is no means test. 19

22 The size of the benefit is 40,030 SIT (167.1 EUR) per month in The benefit level is adjusted once a year in January in line with the consumer price index. Parental allowance is not subject to income tax. Included as variable in HBS. Can be simulated. Birth grant is a universal non means-tested benefit for a child born in Slovenia, if the mother or the father has permanent residence in Slovenia. This benefit is granted either in kind or in cash. The cash benefit amounts to 57,190 SIT (238.7 EUR) in The benefit level is adjusted once a year in January in line with the consumer price index. It is a one-time benefit and not subject to income tax. Included as variable in HBS. Can be simulated. Entitlement to child benefit is a means-tested benefit held by one of the parents for a child residing in Slovenia under the condition that: the child is a national of the Republic of Slovenia; if the child is not a national of the Republic of Slovenia, on the condition of reciprocity (i.e. bilateral convention between two countries). Child benefit is paid only in cases where the income per family member, in the calendar year prior to the submission of a claim, was below the average wage in Slovenia. The level of child benefit depends on the average monthly income per family member in a calendar year prior to the submission of a claim and the birth order of a child. In 2006 the maximum amount of child benefit is SIT (92.1 EUR) for the first child, SIT (101.4 EUR) for the second child and SIT (110.6 EUR) for the third and each subsequent child in a family. Only families with income per family member below 15% of the average wage in Slovenia were eligible to the maximum amount of child benefit. Child benefits for pre-school children who are not included in subsidized childcare programmes are 20% higher. Child benefits for children in single parent families will be 10% higher as compared to those for other children. The level of child benefit is adjusted once a year in January in line with the consumer price index. The right to a child benefit is held until the child reaches 18 years of age, as well as for the period in which the child continues with full-time education i.e. for as long as the child enjoys the status of a primary school pupil, a secondary school- or an undergraduate university student, provided the child is less than 26 years of age. If the university studies last five or six years or if the child did not complete regular schooling within the prescribed period due to prolonged illness, or injury, or the undertaking of military service during schooling, the 20

23 right to a child benefit may be extended by the length of the period for which education was extended for such reasons. Child benefit is not subject to income tax. Included as variable in HBS. Can be simulated. Large-family supplement is a universal non means-tested transfer to families with three or more children. Eligible are families with three or more children below age 18 or older, if fulfilling the age and status conditions for the entitlement to a child benefit. In order to qualify, the parents and children must hold Slovenian nationality and have the same place of permanent residence. The level of benefit is paid once a year and amounts to 80,070 SIT (334.2 EUR) in The benefit level is adjusted once a year in January in line with the consumer price index and is not subject to income tax. Can be simulated. Childcare supplement is a non means-tested benefit, paid for seriously-ill children and physically or mentally handicapped children. The level of benefit amounts to 20,590 SIT (85.9 EUR) per month (in 2005 prices); for seriously handicapped children 41,180 SIT (171.9 EUR). The benefit level is adjusted once a year in January in line with the consumer price index. A child has a right to childcare supplement for the period recommended by a medical expert commission, but not longer than his/her 18 th birthday or until age 26 if in schooling. Childcare supplement is not subject to income tax. Included as variable in HBS. Cannot be simulated no suitable data. National scholarship The employment service of Slovenia provides national scholarships to apprentices, pupils and students from families where the per capita income does not exceed an annual amount of 130% of the guaranteed wage. The amount of scholarship depends on students per capita family income, students grades as well as on commuting or accommodation. Included as a single variable (all scholarships together) in HBS. Cannot be simulated no suitable data 21

24 State pension The state pension is a means-tested benefit. Income not included in the means-test comprises attendance supplement (additional assistance paid to people unable to take care of themselves, i.e. dependant on others) and disability benefit. It is disbursed to persons who do not have a pension in their own right, are at least 65 years old and have resided in Slovenia for at least 30 years (between age 15 and 65). The amount of this benefit is 33.3% of the lowest pension base. Most recipients of this benefit are women. Net pension is subject to income tax, but due to the pensioners tax credit and seniors tax allowance it effectively remains untaxed. Can be simulated. Housing benefit Housing benefit is means-tested and covers part of the rent for a person whose family income does not exceed a certain threshold. The share of covered rent depends on the size of the apartment and the beneficiary s income, and must not exceed 80% of the respective non-profit rent. Included as variable in HBS. Cannot be simulated no suitable data. Social assistance The basic amount of minimum income is set by the law and adjusted once a year in January according to the change in the costs of living in the last year. In 2006, the minimum income amounts to 48,062 SIT (200.6 EUR) for a single person. The minimum income for a family depends on the number of family members: 48,062 SIT (200.6 EUR) for the first adult, 33,643 SIT (140.4 EUR) for the second and each subsequent adult, 14,419 SIT (60.2 EUR) for a dependent child and SIT (60.2 EUR) of supplement for a single parent family. Social assistance is not subject to income tax or social security contributions. The benefit level is the difference between the minimum income for a single person or a family and their own income net of taxes and compulsory social security contributions. Income that does not count for the means-test includes: attendance supplement (additional assistance paid to people unable to take care of themselves, i.e. dependant on others), child benefit and other forms of assistance for children, travel-to-work compensation and food-at-work compensation, scholarships, temporary income earned by disabled people in their institutions (this is small money earned by [usually] mentally handicapped people who are in day care centres and make simple products), 22

25 assistance paid in case of natural disasters (fire, earthquake, etc), aliments. Beneficiaries of social assistance incapable of working due to old age, disease or disability, and to whom the assistance and care by another person is indispensable, are entitled to an attendance supplement as well. Included as variable in HBS. Can be simulated (Other benefits and in-kind transfers) 7 In addition to the above-mentioned contributory and non-contributory benefits there are components of income that are not strictly part of the benefit system or are in-kind transfers. These include: Entitlement payments from the Guarantee Fund which are granted to those workers who lost their jobs due to the initiation of bankruptcy proceedings, forced settlement or liquidation of a commercial company from the court register under the provisions of the Act on Financial Operations of Companies. The Guarantee Fund provides unpaid wages, wage compensations (up to the ceiling amounting to half of the minimum wage) and compensation for dismissal (up to the ceiling amounting to half of the minimum wage). Maintenance replacement is provided by the Maintenance Fund and is intended for beneficiaries children who have been allocated maintenance under a final court ruling, a temporary injunction or an agreement with the Social Security Department, but which the person liable is not paying. It is deemed that a person liable to pay maintenance is defaulting on payment if maintenance has not been paid for three consecutive months or is being paid irregularly. The level of maintenance replacement depends on the age of the child. Childcare subsidy for pre-school childcare in day-care centres amounting to 20%-80% of the price of services; the percentage depends on family income per member, and to a certain extent also on family assets. The difference between the prices and fees collected from parents is covered from the municipal budgets. Subsidized school meals for children in primary and secondary schools whose parents cannot pay for school meals. This benefit is partly means-tested. Subsidized meals for high-school students. Subsidized commuting for children in primary schools as well as secondary and high school students who daily travel to school. The subsidy depends on the distance. Textbook fund provided to all children in primary and secondary schools who can borrow textbooks from school for a lending fee. Foster allowances are paid to families looking after children in foster care. 7 Other benefits and in-kind transfers are not part of the standard EUROMOD. 23