In May 2015, Georgia introduced a major change to its social security system, establishing a child benefit for the poorest 35% of children aged up to 16 years of age nationwide, around 260,000 in total. Georgia already leads the way among developing countries with regard to tax-financed social security, investing over 6% of GDP in social transfers. It implements a highly successful universal old age pension for 680,000 people, which reaches more than half of all households; it also has a disability benefit, with around 92,000 beneficiaries, as well as some smaller benefits for specific categories of the population. The introduction of the Child Benefit means that a key third pillar in an inclusive lifecycle social security system is now in place.
The Child Benefit demonstrates a significant shift in Georgia’s approach to supporting working age families. In addition to the existing lifecycle schemes, Georgia also implements a poor relief scheme – known as the Targeted Social Assistance (TSA) scheme – for around 15% of households, or 144,000 in total. The TSA costs around 0.93% of GDP, which is expensive for a poor relief scheme since most of those found in middle-income countries – such as Bolsa Familia in Brazil and Oportunidades in Mexico – cost less than 0.4% of GDP. The child benefit is financed by a 10% reduction in the TSA budget, so its introduction is cost neutral for the government.
As Figure 1 – which is taken from UNICEF (2015) – demonstrates, the TSA poor relief scheme has minimal impact on the national child poverty rate, in part because it reaches so few children (only 104,000). The main impacts on child poverty up to 10 years of age are from the old age pension scheme, disability benefit and other categorical transfers. For a number of years, UNICEF has argued that, if Georgia wants to improve the wellbeing of children, the government should reform its system of social transfers so as not to rely mainly on old age and disability benefits for reducing child poverty. A child benefit, as the third pillar of an inclusive social security system, makes perfect sense.
Analysis by UNICEF has indicated that the introduction of the Child Benefit will reduce the national child poverty rate from 30.4% to 26.9%, a substantial reduction. Yet, the Child Benefit will be paid at a relatively low value of GEL10 (US$4.50) per month, limiting its impact. If more of the TSA budget were transferred to the child benefit, impacts on children could improve further. For example, if the TSA budget were reduced by around 25%, a Child Benefit of GEL20 per month could be offered to 44% of children, further reducing child poverty to 25.5%, again at no extra cost to government.
The introduction of the Child Benefit is a smart move by the ruling party in Georgia. Poor relief programmes such as the TSA do not tend to be politically popular since they benefit few people, many of whom may not vote in elections, while excluding the majority of taxpayers who finance the schemes. The Child Benefit will almost certainly be more popular than the TSA given that it reaches a higher proportion of the population and its introduction should help the government in the next elections.
In fact, expanding the Child Benefit even further could be a very popular move. Making it universal – as has happened in Mongolia – may not only secure victory for the ruling party in the next elections, but would also make a significant difference to the lives of children across Georgia. The total cost – if the benefit were GEL20 per month – would be 0.6% of GDP. This would leave 0.3% of GDP to finance the TSA as a residual safety net, which is still around 50% more than Brazil invests in the poor relief element of Bolsa Familia. Furthermore, the cost of the Child Benefit is likely to fall over time, since the number of children, as a proportion of the total population, will reduce in the coming decades.
UNICEF – with the support of Development Pathways – is continuing to advise the government of Georgia on its social security policy, to enable Georgia to cement its position as a world leader in social security. In 2013, its investment in social security reduced the national poverty rate from 40% to 25%, while inequality, as measured by the Gini Co-efficient, fell by 25%, a level of impact unprecedented in developing countries. Furthermore, the high level of investment in social security does not appear to have reduced economic growth, which is currently at over 5% per year. Indeed, the increase in consumption among older people and other vulnerable categories of the population, as a result of the transfers, is probably a key driver of growth. Other developing countries thinking of expanding their social security systems should look at Georgia as an example of what is possible.
Anyway, watch this space: we’ll keep you up to date with the innovative work that UNICEF is undertaking.