ESS Extension of Social Security Fiscal space and the extension of social protection: Lessons learnt from developing countries Bolivia, Botswana, Brazil, Costa Rica, Lesotho, Namibia, Thailand and South Africa Fabio Durán-Valverde José Francisco Pacheco ESS Paper N°33 Global Campaign on Social Security and Coverage for All International Labour Office Social Security Department Geneva Copyright © International Labour Organization 2012 First published 2012 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: [email protected]. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit www.ifrro.org to find the reproduction rights organization in your country. ILO Cataloguing in Publication Data Durán-Valverde, Fabio; Pacheco, José Francisco Fiscal space and the extension of social protection: lessons learnt from developing countries: Bolivia, Botswana, Brazil, Costa Rica, Lesotho, Namibia, Thailand and South Africa. Durán-Valverde; Pacheco; International Labour Office, Social Security Department. - Geneva: ILO, 2012 xv. 178 p. (ESS paper, No. 33) ISSN: 1020-9581; 1020-959X (online) International Labour Office; Social Security Dept social protection / social security / social security financing / fiscal policy / Bolivia / Botswana / Brazil / Costa Rica / Lesotho / Namibia / Thailand / South Africa 02.03.1 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. 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Catalogues or lists of new publications are available free of charge from the above address, or by email: [email protected] Visit our web site: www.ilo.org/publns Printed in Switzerland Contents Page List of acronyms ................................................................................................................................ ix Foreword ........................................................................................................................................... xiii Acknowledgements ........................................................................................................................... xv 1. Introduction ............................................................................................................................. 1 2. Fiscal space and social protection: Summary of lessons learnt.............................................. 5 2.1. Information sources ...................................................................................................... 5 2.2. Brief overview of the countries..................................................................................... 6 2.3. General economic and fiscal conditions and their relation to fiscal space for social protection ...................................................................................................... 10 2.4. Trends and lessons learnt .............................................................................................. 13 2.4.1. Main characteristics of social protection programmes..................................... 13 2.4.2. Mechanisms for creating fiscal space: Practical evidence ............................... 14 2.4.3. Fourteen lessons learnt ..................................................................................... 17 3. Bolivia: Financing the extension of social protection through taxes on hydrocarbons .......... 23 3.1. Country profile .............................................................................................................. 23 3.2. Bolivia's social protection system ................................................................................. 24 3.2.1. Contributory benefits ....................................................................................... 24 3.2.2. Non-contributory benefits ............................................................................... 24 3.3. Renta dignidad: Universalizing old-age pensions ........................................................ 25 3.4. Coverage indicators ...................................................................................................... 26 3.5. How fiscal space was created to finance the extension of non-contributory coverage? 28 3.6. Fiscal space and the sustainability of investment for development .............................. 31 3.7. Impact of new social investment in Bolivia .................................................................. 32 3.8. Lessons learnt ............................................................................................................... 33 4. Botswana: Creating the basis for improved social protection ................................................. 35 4.1. Country profile .............................................................................................................. 35 4.2. Social protection policy ................................................................................................ 43 4.2.1. Organization and coverage .............................................................................. 43 4.2.2. Social protection financing and expenditure .................................................... 47 4.2.3. Pensions ........................................................................................................... 50 4.3. Considerations regarding the creation of fiscal space ................................................... 51 4.4. Policy considerations and lessons learnt ....................................................................... 53 4.4.1. Policy considerations ....................................................................................... 53 4.4.2. Lessons learnt................................................................................................... 54 ESS-33 iii 5. Brazil: Increasing fiscal space through social contributions ................................................... 57 5.1. Country profile .............................................................................................................. 57 5.2. Social investment .......................................................................................................... 58 5.3. Overview of the Brazilian social protection system ..................................................... 59 5.3.1. Social insurance programmes .......................................................................... 59 5.3.2. Universal health system ................................................................................... 60 5.3.3. Social assistance............................................................................................... 61 5.4. Fiscal space for social protection .................................................................................. 64 5.4.1. The 1988 Constitution and fiscal space ........................................................... 64 5.4.2. Gross tax burden: The role of social contributions .......................................... 65 5.4.3. Rural pensions .................................................................................................. 66 5.5. Temporary tax on financial transactions ....................................................................... 67 5.6. Fiscal space, economic growth and development ......................................................... 68 5.7. What about creating fiscal space for development?...................................................... 70 5.8. Lessons learnt ............................................................................................................... 72 6. Costa Rica: Prioritizing fiscal space for social protection ...................................................... 75 6.1. Country profile .............................................................................................................. 75 6.2. Social protection programmes and social spending ...................................................... 80 6.3. Contributory social security programmes: The Costa Rican Social Insurance Fund (CCSS) ...............................................................................................