Sustainable Financing of Social
Protection
Technical paper prepared for the 1
st
meeting
of the Employment Working Group under the
Indian presidency
ILO, OECD and ISSA
January 2023
2
Contents
Page
Executive summary 3
1. Introduction 4
2. Social protection coverage and financing gaps in G20 countries 6
1. Effective social protection coverage, SDG indicator 1.3.1 6
2. Financing gaps 8
3. Financing structure of social protection systems in the G20 11
4. Approaches for expanding and financing social protection among G20 members 13
1. Extending social security finance by increasing contributory revenues 13
Extension to difficult-to-cover groups 16
The role of public trust and communication 16
Strengthening contribution collection and preventing fraud 17
Optimizing the investment of social security funds and introducing ESG considerations 18
Ensuring appropriate financing forecasts and considerations for resilience 18
2. Increasing tax revenues 19
3. Eliminating illicit financial flows. 21
4. Increasing aid and transfers 22
Bibliography 24
3
Executive summary
After the Second World War, many G20 countries and invitees
1
have made significant progress in the extension
of social protection coverage, reinforced their social protection systems and established effective social
protection floors. Some have achieved universal or near-universal coverage in different branches of social
protection through a combination of non-contributory and contributory schemes and programmes. However,
other G20 countries are still lagging behind in terms of coverage, especially for essential health services. The
COVID-19 outbreak highlighted the strong need for sustainable investment in social protection including,
essential health care.
ILO estimates on the financing gap show that across the G20, the additional resources needed for achieving
universal social protection coverage range from as high as 17 per cent of GDP to as low as zero per cent in G20
countries where full coverage is observed. Countries with near zero financing gaps include those with mainly
means-tested social protection systems and those that combine earnings-related benefits with a second layer
of means-tested unemployment or social assistance programmes.
Across all countries with available data, there is a trend towards social-contribution financing. However, often,
contribution-based social protection systems also require additional general-revenue funding because (i) rights
to contributory benefits may be accumulated even when not paying into the system, e.g. pension rights
acquired during periods of unemployment or parental leave, (ii) claims may exceed contributions during
extraordinary times (e.g. unemployment schemes in times of economic crises), and (iii), contribution bases of
occupational schemes may shrink because of occupational shifts.
There is no one-size-fits-all approach for extending fiscal space for social protection. ILO Recommendation No.
202 calls upon countries to consider different ways of mobilizing the necessary resources. Some G20 countries
have embraced the provisions of R202 and have recently scaled up efforts towards extending social security
finance by increasing contributory revenues. However, the declining share of labour income in total income is
posing a threat to the viability of contributory social protection systems.
To counter these trends G20 countries have extended social protection coverage for difficult-to-cover groups
such as rural, gig, and informal economy workers. Others have scaled up awareness-raising campaigns
regarding the advantages of affiliation to social protection systems. Simplifying administrative procedures,
strengthening contribution collection, and preventing fraud were also effective strategies used in the G20 to
extend the fiscal space for contributory benefits.
Taxation was another key channel used in the G20 for mobilizing resources to ensure universal social protection
coverage. However, declining corporate tax rates across all G20 countries with available data and lower
revenues from corporate taxes are posing challenges to ensure a stable stream of tax revenues to finance social
protection. To increase the availability of resources for social protection, G20 governments have used revenues
from environmental taxes, introduced voluntary tax compliance programmes for MSMEs and made dedicated
efforts to fight illicit financial flows.
1
From this point, G20 countries and invitees are referred to as G20 countries.
4
1. Introduction
In addition to claiming millions of lives, the COVID-19 pandemic has caused an unprecedented loss of jobs and
livelihoods and exacerbated income insecurity around the world. The impact has been particularly adverse for
people without access to social protection, including those working in the informal and care economies,
women, children, youth, and those without access to digital technologies.
More recently, fragilities in the global food and energy systems, as well as in the global economic and financial
systems, have triggered a cost-of-living crisis around the world unseen in at least a generation. This has to be
set against the backdrop of the triple planetary crises (climate change, pollution, and loss of biodiversity) and
its adverse impacts on economies and societies, including on water security and food production, health, and
well-being.
2
In the midst of these challenging circumstances, major decent work deficits persist around the world,
undermining social justice. In 2022, an estimated 214 million workers were living in extreme poverty (earning
less than US$1.90 per day per person in purchasing power parity [PPP] terms), corresponding to around 6.4
per cent of employed people.
3
More than 60 per cent of workers – some 2 billion men and women – continue
to make their living in the informal economy, mostly but not exclusively in developing countries.
4
The great
majority of these workers do not have access to social protection
5
and fundamental rights at work,
6
and, most
often, their working conditions are worsened when gender intersects with other characteristics such as, age,
disability, migration and indigenous peoples status.
7
Incomes have continued to be distributed highly unequally, such that many workers have failed to escape
poverty.
8
Evidence shows that, between 2005 and 2021, income inequality has increased in many G20 emerging
countries with a rising share of income held by the top 10 per cent and a declining share held by those at the
bottom 50 per cent of the income distribution.
9
Evidence from G20 countries shows that, more income equality
is associated with greater per capita income and that countries that have higher social protection expenditure
per capita are also those that show lower levels of inequality.
10
This means that, social protection is not only a
human right
11
and an effective instrument to enhance economic dynamism and development, but also a
powerful tool to redistribute income and reduce poverty and inequality across the lifecycle.
12
The rising levels of inequality are also compounding the challenges for central bankers in their attempt to bring
down inflation rates. With a larger proportion of aggregate consumption driven by households earning the top
10 per cent of income that are insensitive to interest rate hikes, there is a risk that a monetary policy much
tighter than in the past will be perceived as necessary in order to produce a significant impact on inflation. This
will disproportionately raise the cost for poorer households in terms of higher prices and lower employment
opportunities and also for businesses, especially MSMEs, with high levels of external financing.
13
2
IPCC 2022.
3
ILO 2023.
4
ILO 2018.
5
As of 2020, across the world 53.1 – as many as 4.1 billion people – were left fully unprotected by social protection. See also
ILO 2021c.
6
ILO 2021b; ILO 2021c; ILO 2018.
7
ILO 2023; Cattaneo, Beghini, and Pozzan 2022.
8
World Inequality Lab 2022.
9
Ibid.
10
Razavi and Cattaneo Forthcoming.
11
UN 1948.
12
Razavi and Cattaneo Forthcoming.
13
Ibid.; BIS 2022; ILO 2023.
5
In the current context of raising income inequality, economic growth is forecasted to be below 2 per cent in
2023,
14
with serious risks of tax base erosion used to finance contributory and non-contributory benefits.
Keeping existing social protection systems afloat and ensuring wider and more adequate coverage where gaps
exist will be an even greater challenge with rising debt burdens. The ILO normative framework on financing
social protection (Box 1) provides guidance regarding financing of social security and how to expand the fiscal
space for social protection.
15
This paper describes the current reach of social protection systems across G20 countries and associated
financing gaps (Section 2), as well as current funding mixes (Section 3Error! Reference source not found.). The l
ast section outlines approaches that various G20 countries adopted for expanding fiscal space for social
protection (Section 4).
Box 1. What do International Labour Standards say about financing social security?
The key international labour standards of the ILO in the field of social security are the Social Security (Minimum
Standards) Convention, 1952 (Number 102), and the Social Protection Floors Recommendation, 2012 (Number
202). While Convention 102, ratified by 63 countries (Jan. 2023), establishes minimum criteria regarding the
design and governance of social security systems, Recommendation 202 provides key principles and criteria and
envisions a two-dimensional strategy, urging countries to guarantee at least basic levels of income security and
access to essential healthcare for all (horizontal dimension), and to incrementally secure higher levels of
protection for as many persons as possible and as soon as possible (vertical dimension).
The international labour standards also provide principles and criteria for the financing of social protection
systems. Article 71 of Convention 102 establishes, in its first paragraph, that the cost of social security schemes
(including administration) shall be financed collectively by contributions and/or taxes, with due attention to
avoiding hardship for persons of small means. In its second paragraph, it sets out that the total insurance
contribution borne by workers shall not exceed 50% of the total cost of the social security scheme, while
employers (and the State when applicable) contribute at least the other half of the scheme’s cost. In the case of
employment injury schemes, the employer pays for the whole cost. In the final paragraph, the article establishes
the general responsibility of the State for the provision of the benefits, and it also requests countries to produce
actuarial reviews to ensure financial equilibrium – periodic ones and before any reform that modifies benefits
or contributions/taxes.
Recommendation 202 establishes the concept of national social protection floors, that comprise basic social
security guarantees providing basic income security as well as essential healthcare for children, persons in active
age and for older persons. In its article 12, Recommendation 202 states that national social protection floors
shall be financed by national revenues (mainly taxes and social contributions), whereas countries with lower
economic capacities can seek international cooperation and support to complement their own domestic efforts.
In article 3, the Recommendation provides the principles to be applied, including on financing (h-k): solidarity,
diversity of methods, sound management and financial, fiscal and economic sustainability. Article 11 states that
Members should mobilize funds from a diversity of sources, including a broader and more progressive revenue
base, ensure stronger compliance with tax and contribution obligations, as well as expenditure reprioritization.
Members are also advised to implement measures to prevent fraud, tax evasion and non-payment of
contributions.
14
ILO 2023.
15
Cichon, International Labour Office, and International Social Security Association 2004.
6
2. Social protection coverage and financing gaps in
G20 countries
1. Effective social protection coverage, SDG indicator 1.3.1
16
After the Second World War, many G20 countries and invitees
17
have made significant progress in the extension
of social protection coverage, reinforced their social protection systems and established effective social
protection floors. Some have achieved universal or near-universal coverage in different branches of social
protection through a combination of non-contributory and contributory schemes and programmes. For
example, this was the case in Canada, France, Germany, the Netherlands, the Russian Federation, Spain,
the United Kingdom, and Singapore. In some G20 countries, progress in closing social protection coverage
gaps was evident between 2016 and 2020. Figure 1, which presents the proportion of the population covered
by at least one social protection cash benefit (SDG indicator 1.3.1), shows that Japan managed to increase
effective coverage by 23 percentage points in 4 years, reaching an effective social protection coverage of 98
per cent in 2020. This increase was mainly driven by an increase in social protection coverage for the
unemployed and for mothers of newborns. Similarly, Australia increased coverage for at least one social
protection cash benefit from 82 to 100 per cent between 2016 and 2020 with progress driven by the
achievement of universal coverage for old age pensions and for vulnerable persons. The latter group comprises
children, people of working age and older persons not otherwise protected by contributory schemes. Brazil,
China, India, Nigeria, Mexico, South Africa and the Republic of Korea have also increased social protection
coverage between 2016 and 2020.
Figure 1. SDG indicator 1.3.1: effective social protection coverage, 2016 and 2020 or latest available
year
Source: ILO, World Social Protection Database.
16
Proportion of population covered by at least one social protection cash benefit: ratio of the population receiving cash
benefits under at least one of the contingencies/social protection functions (contributory or non-contributory benefit) or
actively contributing to at least one social security scheme to the total population. For a full definition see:
https://unstats.un.org/sdgs/metadata/files/Metadata-01-03-01a.pdf
17
From this point, G20 countries and invitees are referred to as G20 countries.
7
Although health coverage is one of the four basic guarantees of social protection floors, as defined in
Recommendation No. 202, it is not monitored under SDG indicator 1.3.1, but under SDG indicator 3.8.1, which
corresponds to the Universal Health Coverage (UHC) Index. The index captures coverage of essential health
services, defined as the average coverage of essential services.
18
The COVID‑19 crisis has revealed large gaps
in social health protection, underlining the point that ensuring universality and continuity of coverage is
essential in a context where the health of one person affects the health of everyone.
19
Developed G20 countries had already achieved very good coverage of essential services with UHC index scores
above 80 points at the onset of the pandemic. Between 2015 and 2019, many emerging G20 countries scaled
up efforts to improve their health systems, and improvements are evident in Figure 2, which presents the
evolution of the UHC index during the 4-year period. Most notably, Egypt increased the UHC index by 8 points,
followed by Indonesia (8 points), India (6 points) and Bangladesh (6 points). Progress was also evident in
China, which expanded social health protection coverage and reached UHC index score of 82 points in 2019, in
line with the UHC index population-weighted average of 83 points for high-income G20 countries in the same
year.
The COVID-19 outbreak highlighted the strong need for sustainable investment in health systems, including
the health workforce and equipment.
20
Austerity measures implemented in pre-pandemic times, which entailed
steep and indiscriminate cuts to government spending, worsened the effects of the pandemic.
21
Evidence also
showed that austerity policies had negative effects on health outcomes, especially for women living in
disadvantaged areas.
22
Figure 2. SDG indicator 3.8.1. Universal Health Coverage Index, 2015 and 2019
Note: The UHC index is reported on a unitless scale of 0 to 100, which is computed as the geometric mean of 14 tracer indicators of health
service coverage. The tracer indicators are as follows, organized by four components of service coverage: 1. Reproductive, maternal, newborn
and child health 2. Infectious diseases 3. Noncommunicable diseases 4. Service capacity and access
Source: ILO calculations based on WHO, Global Health Observatory.
18
For a full definition see: https://unstats.un.org/sdgs/metadata/files/Metadata-03-08-01.pdf
19
ILO 2021c.
20
ILO 2020.
21
Arrieta 2022; ILO 2021a.
22
Walsh et al. 2022.
8
2. Financing gaps
The evidence presented in the previous section showed that social protection coverage gaps persist across the
G20 and that further investment is needed to fill these gaps. In particular, prioritizing investments in nationally
defined social protection floors is vital for delivering on the promises of the 2030 Agenda. Figure 3 presents the
social protection financing gaps, measured as a percentage of GDP, for achieving universal social protection in
2022 across the G20. As expected, the financing gaps for developing countries in the G20 are significant. For
instance, in Nigeria, there is a need to invest an additional 4.6 per cent of GDP, or 23 billion USD, to achieve
universal social protection coverage for children, mothers of newborns, persons with disabilities, persons in
old-age and the unemployed. Moreover, ensuring universal coverage for essential health care services
23
would
mean progressively mobilizing an additional 12.3 per cent of GDP or 62 billion USD. A similar situation is
estimated in other emerging countries such as Bangladesh, followed by Indonesia, Mauritius and India. In
India, achievement of universal social protection including universal coverage for essential health care services,
would require spending an additional 7.2 per cent of GDP or 248 billion USD.
In developed G20 countries and China, financing gaps in essential health care are comparatively low, while
gaps for the 5 social protection areas (children, disability, maternity, old-age, unemployment) are below 3 per
cent of GDP. Figure 4 corroborates these findings by showing the proportion of total investment needed to
close the financing gaps disaggregated by each social protection area. For example, in Australia, the
Netherlands and in the United Kingdom, additional investments would need to be directed towards covering
the unemployed, while in Spain the unemployed would require 73 per cent of the total investments needed to
achieve universal social protection coverage. In China, the largest part of resources – 51 per cent or 21 billion
USD –would need to be directed towards children, in Japan 73 per cent of the funds or 18 billion USD required
to ensure universal social protection coverage would be for persons with disabilities, while in Italy 43 per cent
or 19 billion USD would be for old age persons.
The ILO Social Protection Floors Recommendation (No.202) provides a useful framework that G20 countries
may embrace to design and implement policies aimed at securing universal social protection. In particular, it
calls for using a variety of methods to mobilize the necessary resources to ensure financial, fiscal and economic
sustainability of national social protection floors, taking into account the contributory capacities of different
population groups. Such methods may include, individually or in combination, effective enforcement of tax and
contribution obligations, reprioritizing expenditure, or a broader and sufficiently progressive revenue base (see
also Box 1 and Chapter 5).
23
Universal coverage for essential health services is proxied by the achievement of Universal Health Care Index value of 84
points, which corresponds to population weighted average of the Universal Health Care Index observed across high-income
economies in the year 2022
9
Figure 3. Financing gap for achieving universal social protection coverage, as a percentage of GDP,
G20 members and invitees, 2022
Note: The estimations for the 5 social protection areas (children, disability, maternity, old-age, unemployment) consider the social protection
coverage rates of 2022 with GDP at current prices and national poverty lines for the year 2022. The estimation for essential health care is
produced in two steps. 1) The elasticity of the Universal Health Coverage Index (SDG indicator 3.8.1) to health expenditure as percentage of
GDP is estimated in a panel regression covering 194 countries for the years 2000 to 2022. 2) The estimated elasticity is used to calculate in each
country the additional percentage points of GDP that needs to be allocated to health expenditure to reach a Universal Health Care Index value
of 84 points, which corresponds to population weighted average of the Universal Health Care Index observed across high-income economies
in the year 2022. Estimations for Oman, United Arab Emirates and Singapore are not available as no national poverty line was found.
Source: ILO estimates based on ILO forthcoming, Financing gaps in social protection 2023 revision.
10
Figure 4. Distribution of the financing gap for achieving universal social protection coverage across
the G20 members and invitees, 2022
Note: Estimates for Oman, United Arab Emirates and Singapore are not available as no national poverty line was found.
Source: ILO estimates based on ILO forthcoming, Financing gaps in social protection 2023 revision.
Differences in public social spending explain some, but not all, of this cross-country variation in social protection
coverage and financing gaps. Among countries with available data, the Republic of Korea does have the lowest
level of aggregate social spending, and France the highest (Error! Reference source not found.5). But the c
omposition of public social spending on health, working-age benefits and old-age pensions matters as well,
especially since health services and some old-age pensions are privately provided in some countries. For
instance, public social spending is somewhat higher in the United States than in Australia, where more jobless
low-income individuals receive support. This is because public social expenditure in the United States is mostly
made-up of old-age pensions and health services, whereas most old-age pensions in Australia are private, and
public social expenditure in Australia thus skews more towards working-age support. Public social expenditure
in Italy is also higher than in Germany, where social protection financing gaps are zero (Figure 3). As a
percentage of GDP, Italy also spends more on working-age support than Germany, however benefits in
Germany are more targeted to low-income households.
24
The gap in coverage rates between standard and non-standard workers are the largest where (i) benefits are
mainly contribution-based, (ii) non-standard workers are not covered at all or only partially covered, and (iii)
social assistance programmes either do not exist or are inaccessible (e.g. Italy and Korea). Countries with low
or no access gaps include those with mainly means-tested social protection systems (Australia, the United
Kingdom and the United States), and those that combine earnings-related benefits with a second layer of
means-tested unemployment or social assistance programmes (e.g. France and Germany).
25
24
Immervoll, Hyee, et al. 2022; OECD 2022.
25
OECD Forthcoming.
11
3. Financing structure of social protection systems in
the G20
Financing strategies and policy setups differ significantly across countries. Some countries rely mainly on
general revenue to grant basic health-services to all residents and means-tested benefits for working-age
support, and have a high share of private expenditure for old-age pensions (e.g. Australia, Canada, the United
Kingdom and, to a lesser degree, the United States). In other countries, workers acquire entitlements to
earnings-related benefits such as unemployment insurance, disability and parental-leave benefits as well as
old-age pensions through contributions, with a limited role for general-revenue-financed, means-tested
transfers for those who do not have the required contribution history, but operate a general-revenue financed
healthcare system (e.g. Italy, the Republic of Korea or Spain). A third group combines a contribution-funded
health-care system and insurance-based out-of-work benefits (including old-age pensions) with means-tested
benefits for low-income households, and universal benefits for children (e.g. France and Germany, see Error! R
eference source not found.5).
The funding mix can differ across countries that have similar levels of spending, reflecting different policy
institutions (such as privately or publicly-funded healthcare and pension systems), but also different strategies
for balancing the various objectives of social protection – such as risk sharing, income smoothing over time,
inequality reduction and poverty alleviation. Often, contribution-based social protection systems also require
additional general-revenue funding because (i) rights to contributory benefits may be accumulated even when
not paying into the system, e.g. pension rights acquired during periods of unemployment or parental leave, (ii)
claims may exceed contributions during extraordinary times (e.g. unemployment schemes in times of economic
crises), and (iii), contribution bases of occupational schemes may shrink because of occupational shifts – e.g.
the miners’ pension scheme in Germany.
Figure 5. Public social spending by social security contributions and general revenue funding, in % of
GDP, 2019
Note: Social expenditure includes (public) old age and survivor pensions, income support to the working age population, (public) health
spending, as well as other social services. The share of general revenue financing is calculated as an residual by subtracting social insurance
contributions from overall social spending. It therefore includes all other sources of social financing other than social insurance
contributions. While these are mostly general tax revenue, some countries (e.g. Tobacco taxes in France) operate taxes earmarked for social
spending. * Australia (2017), Canada (2018). The EU average excludes Bulgaria, Croatia, the Republic of Cyprus, Malta and Romania. In-kind
healthcare and some old-age pensions are private in the Netherlands (in 2019, private social expenditure accounted for 13% of GDP).
Source: OECD SOCX database (social expenditure), OECD Tax database (social insurance contributions)
0
5
10
15
20
25
30
35
MEX TUR KOR NLD AUS CAN USA OECD GBR JPN EU ESP DEU ITA FRA
Social insurance contributions General revenue
12
Figure 6. Development of public social spending by social security contributions and general revenue
funding, in % of GDP
Note: Social expenditure includes (public) old age and survivor pensions, income support to the working age population, (public) health
spending, as well as other social services. The share of general revenue financing is calculated as a residual by subtracting social insurance
contributions from overall social spending. It therefore includes all other sources of social financing other than social insurance
contributions. While these are mostly general tax revenue, some countries (e.g. Tobacco taxes in France) operate taxes earmarked for social
spending. The EU average excludes Bulgaria, Croatia, the Republic of Cyprus, Malta and Romania; in 2000 and 1980 additionally the Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia.
Source: OECD SOCX database (social expenditure), OECD Tax database (social insurance contributions)
Most G20 countries with mature social protection systems expanded social spending over the last four decades,
with particularly strong increases in Japan, Italy and France (+ eleven to twelve percentage points of GDP).
Japan mainly increased spending on health services, and to a lesser degree old-age pensions, and Italy and
France mainly on old-age pensions and working-age cash benefits. Also, Turkey increased spending by nine
percentage points, mainly on old-age pensions and healthcare. The Netherlands are an outlier in that public
social expenditure declined since 1980, mainly because of a reform that privatised healthcare provision in
2006.
26
Across all countries with available data, there is a trend towards social-contribution financing. Thus, an
increasing share of total social protection spending is paid exclusively by workers and employers. Turkey
almost reversed its funding mix from two-thirds general revenue, one-third social contribution-funded to two-
thirds contribution funded. Japan, Spain and Germany also increasingly rely on social contributions to fund
rising social expenditure. France, and to a lesser extent Italy, are the only countries with available data that
increased the share of general revenue (Figure 6. Development of public social spending by social security
contributions and general revenue funding, in % of GDP
26
Immervoll, Fernandez, et al. 2022.
0
5
10
15
20
25
30
35
1980
2000
2010
Social insurance contributions
General revenue
13
Note: Social expenditure includes (public) old age and survivor pensions, income support to the working age population, (public) health
spending, as well as other social services. The share of general revenue financing is calculated as a residual by subtracting social insurance
contributions from overall social spending. It therefore includes all other sources of social financing other than social insurance
contributions. While these are mostly general tax revenue, some countries (e.g. Tobacco taxes in France) operate taxes earmarked for social
spending. The EU average excludes Bulgaria, Croatia, the Republic of Cyprus, Malta and Romania; in 2000 and 1980 additionally the Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia.
Source: OECD SOCX database (social expenditure), OECD Tax database (social insurance contributions)
6).
4. Approaches for expanding and financing social
protection among G20 members
There is no one-size-fits-all approach for extending fiscal space for social protection. ILO Recommendation No.
202 calls upon countries to consider different ways of mobilizing the necessary resources (Box 1). G20 countries
where large coverage and financing gaps persist need to invest more and better in social protection, on the
basis of principles of universality, adequacy, sustainability and solidarity. Not only the design and
implementation of social protection systems, including floors, but also decisions on their financing need to be
adapted to the developments in the world of work and guided by effective social dialogue. G20 experiences
show that countries usually adopt different strategies for creating fiscal space.
27
Some of the emerging
strategies used across the G20 are discussed below.
1. Extending social security finance by increasing contributory
revenues
Social security contributions play a critical role in financing social protection. Social security contributions are
linked to legal entitlements and should be considered a deferred wage and a social and economic investment.
27
ILO 2019a; ILO 2019b; ILO 2021c.
0
5
10
15
20
25
30
35
1980
2000
2010
Social insurance contributions
General revenue
14
According to the ILO Convention C102, social security contributions shall be collected in a manner which avoids
hardship to persons of small means and takes into account the economic situation of the member and the
classes of persons protected. Furthermore, the total of the insurance contributions borne by the employees
protected shall not exceed 50 per cent of the total of the financial resources allocated to the protection of
employees and their families including children.
28
Social security contributions have represented a reliable way to finance social protection in many G20 countries,
with the highest share of total government revenues represented by social security contributions at 40.4 per
cent in Japan (Figure 7).
29
In most G20 countries where the initial design of social protection systems was made
under strong Bismarckian influence linked to social insurance and even in those countries that have moved
towards the Beveridge universalist model, social security contributions continue to be predominant, regardless
of their level of national income.
30
In some G20 countries, social contributions are low or virtually non-existent, but not always for the same
reasons. Canada, the United Kingdom and Singapore have mature social security systems that are mostly tax-
financed. In G20 emerging countries, social security systems are still in need of substantial investments to reach
universal coverage, which explains the low proportion of social contributions.
Figure 7. Share of social security contributions as a percentage of total government revenues, 2005-
2020, per cent
Source: OECD, Global Revenue Statistics. Insert source here
The amount of income that is produced by labour, which includes wages and work-related earnings of the self-
employed, is strongly linked with the country’s capacity to generate revenues from social security contributions.
In developed countries, the share of income attributable to labour clustered around 60 per cent in 2019, while
in the G20 emerging countries, it remained mostly below 50 per cent (Figure 8). Between 2004 and 2019, the
share of labour income in total income has mostly stagnated and, in some instances decreased, also in the
advanced G20 countries. These trends are probably exacerbated by the decline of real wages in the first half of
2022, which is estimated at –2.2 per cent in the advanced G20 economies.
31
28
ILO 2019a.
29
The share of total government revenues represented by social security contributions is missing in India, Oman, Russian
Federation, Saudi Arabia and the United Arab Emirates.
30
ILO 2019a.
31
ILO 2022c.
15
In the emerging G20 countries, the labour income shares mostly increased. In China, for example, the labour
income share increased from 50 per cent in 2004 to 52 per cent in 2019. These trends seem to be sustained by
modest, though positive, wage growth of 0.8 per cent observed in G20 emerging economies in the first half of
2022.
32
There are exceptions, however, one being Mexico, where the labour income share decreased and
where, together with Italy, Japan and the United Kingdom, real wages were lower in 2022 than in 2008.
33
There are several possible explanations for this trend, including the impact of technological changes, increased
globalization, the enhanced exercise of market power by large firms in concentrated product markets, the
decline in unionization rates and the erosion of the bargaining power of workers in labour markets.
34
Figure 8. Share of labour income in total income, 2004-2019
Source: ILOSTAT, 2023.
In this context of declining wages and labour income shares in advanced economies, as well as widespread
income inequality and persistent labour market informality in emerging G20 countries, many G20 countries
have taken steps to broaden the contribution base and improve collection mechanisms. Example of emerging
practices observed across the G20 include the following:
32
Ibid.
33
Ibid.
34
Karabarbounis and Neiman 2014; Grossman and Oberfield 2022.
16
Extension to difficult-to-cover groups
Contributory social security systems have been extended to the so-called difficult-to-cover groups, which
include very different categories of workers ranging from domestic workers and rural workers to the low-
income self-employed - also known as the “missing-middle” – as well as platform workers. Workers pertaining
to these groups have often one common characteristic: they are working in the informal economy.
Building on the concrete experience of ILO member countries, the ILO Transition from the Informal to the
Formal Economy Recommendation, 2015 (No. 204) provides a useful framework to ensure that an integrated
policy framework to facilitate the transition to the formal economy is included at all levels of government with
a view to progressively extending coverage of social protection for all, including for difficult-to-cover groups in
the informal economy. According to R204, reducing compliance costs by introducing simplified tax and
contributions assessment and payment regimes is one concrete way of moving in this direction.
Several G20 countries have adopted strategies in line with this provision, by for example, simplifying
administrative procedures to enable difficult-to-cover workers to enrol and pay contributions together with
other formalities, such as tax payments through single portals and mobile apps. Argentina,
35
Brazil
36
and other
Latin American countries as well as Indonesia
37
and other Asian countries have implemented schemes and
service delivery tools to cover these groups. In addition, very low-income self-employed can benefit from
government subsidies to their contributions, for instance, in the Monotributo/Monotax schemes in Argentina
and Brazil.
38
Some countries are also applying these approaches to cover platform workers, which is discussed
in a separate paper presented to the EWG.
Despite the challenges and costs, developing effective mechanisms for collecting contributions is crucial to
ensure broad and effective coverage for all types of workers. Countries such as Argentina, France, Indonesia
and Spain leveraged their capacity generated by implementing regular contribution collection systems to
develop systems tailored to difficult-to-cover groups. Extending coverage and workers’ formalization through
contributory schemes are crucial for improving social protection financing and sustainability. Although this may
involve short-term investments and eventual subsidies, it ensures the comprehensive enrolment of, and
contribution collection from, large numbers of workers that can increase social security revenues in the middle
and long term. In addition, these measures also help improve public trust in the social security system as well
as support for expenditures, especially among younger generations, who are increasingly working in new types
of jobs.
39
The role of public trust and communication
The readiness of individuals and of society as a whole to pay for social security systems impacts significantly on
their financing. But it is sometimes overlooked. The acceptance to contribute and support political decisions in
this regard is linked to public trust in the capacity of the system to deliver reliable and quality benefits. Efforts
to communicate appropriately about social security, reform initiatives and high-quality service delivery are
important strategies in this regard. An example is the question of educating younger generations on the vital
role and delivery capacity of old-age pension systems. To counter disinformation and strengthen trust in the
pension system among the younger population, Japan
40
introduced on-site pension lessons in schools and
developed study tools including “pension manga”. The French social security institutions implemented
35
ISSA 2017.
36
ILO 2019c.
37
ISSA 2020b.
38
ISSA 2021h.
39
ISSA 2022d.
40
ISSA 2021g.
17
communication campaigns strengthening the visibility of the positive impact of social security and its key role
for citizens’ daily life as well as enhancing public support for social security.
41
In Oman, the social security
institution has collaborated with academic and educational institutions to educate students and children about
social security and its importance.
42
Strengthening contribution collection and preventing fraud
Independently from the categories of workers and employers, improving contribution collection and
compliance enforcement mechanisms is key to maximizing social security financing through contributions. To
enhance compliance, recent practices have demonstrated the importance of making the dealings with social
security administration as simple and tailored as possible.
43
Spain has implemented a tailored portal to facilitate
domestic workers' registration and contribution payment. The portal aims to overcome barriers related to
administrative, communication and web design complexities.
44
France has also developed a tailored portal for
the self-employed and entrepreneurs to facilitate registration and contribution payment.
45
These experiences
also show that in addition to developing the institutional capacities of administrations to implement these
tailored approaches, attention must also be paid to developing the understanding and capacities of
contributors, especially among the low-income self-employed and difficult to cover groups. More recently, the
application of behavioural insights techniques has also enabled influencing the behaviour of contributors and
strengthen compliance.
46
For instance, by applying these innovative behavioural techniques, Indonesia could
reduce social security contributions arrears of employers and encourage them to make on-time payments of
member contributions. They tested the effectiveness of different email interventions to influence employers to
increase contribution payments before the monthly deadline.
47
Appropriate measures to prevent and detect fraud in social security contributions are fundamental for
contributory social security systems due to the financing implications and the potential impact on reputation
and public trust. Many G20 countries have implemented innovative mechanisms addressing the ever-evolving
challenges in this area. Notably, Argentina, France, Indonesia, Oman, Saudi Arabia and Spain have
developed fraud detection systems using data analysis, predictive analytics, and data exchange with other
public agencies.
48
In addition, Mexico and Singapore developed fraud prevention measures fostering
voluntary compliance by applying behavioural insights techniques. Concretely, the Mexican IMSS provided the
employees monthly reports on the contributions made by the employers as a dissuasive and corrective
measure to address under-declaration.
49
In turn, the Singapore CPFB fostered self-employed enrolment and
voluntary compliance by simplifying the enrolment and contribution payment, developing communication
campaigns and providing a government contribution during a transitionary period.
50
Previously, as part of the
WorkRight initiative, the CPFB developed video spots and advertising posters to educate employers on their
legal obligations and employees on their rights.
51
41
ISSA 2022a.
42
ISSA 2021c.
43
ISSA 2019.
44
ISSA 2022c.
45
ISSA 2022b.
46
ISSA 2021b.
47
Ibid.; The Behavioural Insights Team 2019.
48
ISSA 2018a; ISSA 2018b; ISSA 2020a; ISSA 2021a; ISSA 2022a; García Huete 2022.
49
ISSA 2023.
50
ISSA 2021d.
51
WorkRight initiative (Singapore): https://youtu.be/QZ8E8cUQEkg
18
Optimizing the investment of social security funds and introducing ESG
considerations
A number of G20 countries, including the Republic of Korea, Japan, Indonesia, Saudi Arabia and the United
States have established public social security reserve funds to secure the capacity to pay benefits during times
when current expenditures exceed current contribution income. The biggest social security reserve funds have
been established in the area of old-age protection and retirement schemes and they are usually managed by a
social security institution under regulations and oversight by other government bodies.
These social security funds not only play a key role in the future financing of benefits but also allow for
anticyclical measures in case of unexpected events and crises. It is in the interest of covered population and all
stakeholders that social security funds are invested with an appropriate asset/liability management,
appropriate investment horizons and an optimal risk/return ratio. In addition, sound governance must be in
place to ensure that investment decisions are made in the best interests of scheme members and without
undue influence.
Efforts to strengthen investment approaches have been undertaken in order to enhance the funding ratio of
schemes and of the broader social security systems. Indonesia’s social security institution has worked towards
strengthening asset-liability management and to achieve more dynamic investment management with regard
to improving the funding ratio of old-age pensions.
52
In Oman, the social security institution has enhanced data
management and investment risk assessment and thereby contributed to strengthening of the funding ratio.
53
An important development has been the inclusion of a mandate for environmental, social and governance (ESG)
investment in the portfolio decisions of public social security reserve funds. ESG investment is also linked to a
growing attention to infrastructure investment designed to enhance domestic growth opportunities that are
expected to also support the future financing of social protection systems. The National Pension Service of
Korea carries out ESG evaluation for specific asset classes.
54
The Government Pension Investment Fund of
Japan adopted an ESG index for domestic equities focussing on the measures taken by companies related to
emissions and climate change.
55
The unemployment insurance scheme in France has introduced social impact
considerations in their debt financing strategies through social bonds.
Ensuring appropriate financing forecasts and considerations for resilience
Regular and high-quality financial forecasts are essential for the formulation of long-term financing strategies
for social protection schemes. Actuarial valuations are at the core of these and are indispensable to assess the
sustainability of social security programmes but are also required to assess system adequacy, financing and
funding considerations. Actuarial valuations and financial forecasts are based on a range of assumptions
including life expectancy, labour market participation, scheme coverage, real wage increases or economic
growth, and are inherently complex. Findings of actuarial valuations also have an impact on investment
decisions, benefit calculations and communication. The approach to assessing the financial obligations of social
security systems should also be consistent across systems and with other public spending and not encourage
or promote a particular financing approach.
In this regard, efforts must continue to ensure that decisions regarding the financing of social protection are
based on the best available evidence and assumptions. The ILO has recently developed new actuarial models
for social security pensions and health that are accessible via the ILO/ISSA actuarial services platform launched
this year.
Climate related risks, shocks to livelihoods and extreme events make financial forecasting even more complex
but also require the increasing consideration of the financial means necessary for ensuring both the resilience
of social protection systems and the contribution that social protection makes to societal and economic
52
ISSA 2021e.
53
ISSA 2021f.
54
NPS 2023.
55
Government Pension Investment Fund 2023.
19
resilience. The recent pandemic demonstrated this need as an erosion of revenue sources from both
contributions and investments met an unprecedented increase in the need for benefit expenditures. To
enhance the capacity for anticyclical financing in social protection and prepare for extreme events, risk
management methodologies need further attention.
2. Increasing tax revenues
Taxation is the other key channel for mobilizing the resources that governments need to establish universal
social protection systems, including floors, that provide adequate protection for all in need across the life cycle.
Countries have a wide range of options to raise tax revenues, the most common are consumption/sales and
value added tax (VAT), progressive taxation such as income, wealth and corporate taxes –including taxes on the
financial sector– as well as property, inheritance and environmental taxes (Box 3).
International competition for inward FDI has led many G20 governments to reduce tax rates and to otherwise
increase tax concessions to corporations. Figure 9 shows that, without exception, all 13 G20 countries with
available data have reduced their corporate tax rates over the past 20 years. However, there is no consensus
on the advantages of granting such concessions in the matter of direct taxes, since the diversion of
international investment or the attraction of such flows is determined by many factors, including the quality
and availability of infrastructure, human capital, and institutions. Therefore, G20 countries should examine the
cost and benefits of such tax concessions as they may constitute an unnecessary loss of revenue, which could
be used to ensure universal social protection coverage.
56
Declining corporate tax rates mirrors lower
proceedings from corporate taxes as a share of GDP. In 8 out of 13 G20 countries with available data,
government revenues from corporate taxes have declined, driven by lower tax rates, but also by non-
compliance with tax obligations (Figure 10).
Governments face challenges in ensuring compliance with taxes at all levels from wage and salaried workers,
own-account workers, MSMEs to large corporations. To promote tax compliance for small contributors,
voluntary tax compliance programmes have been adopted across the G20 (e.g. Argentina, Indonesia, Spain).
Countries may introduce these programmes for a variety of reasons including, among others, raising tax
revenue, regularising the payment of social security contributions, and/or facilitating asset repatriation for the
purpose of economic policies, especially when the country is in an economic crisis.
57
Increasing tax compliance and/or raising tax rates are important strategies to expand fiscal space for social
protection. Equity, gender balance, efficiency, and administrative feasibility are other key criteria that must be
factored in when designing and evaluating tax systems. Countries face significant problems in tax policy due
to globalization and other factors, such as illicit financial flows. Global and regional tax cooperation is needed
to deal with these problems effectively.
56
ILO 2019a.
57
Council of Europe 2014.
20
Box 3. The emerging role of environmental taxes for financing social protection
In the context of the green transition, the main purpose of environmental taxes (carbon taxes, excise taxes on
fuels, and revenues from emissions trading systems) is to disincentivise carbon emissions. But they can form
part of a sustainable financing strategy for social protection through revenue recycling.
58
OECD research shows that in 2019, 60% of 40 countries studied earmark at least part of the revenue from
environmental taxation. Of the 19 G20 countries with available data
59
, only the United Kingdom earmarks a
small share of the revenue generated from excise taxes on fuels for tax policy changes (such as tax rebates).
However, South Africa uses revenue from excise taxes to fund an insurance scheme for victims of road injuries,
and Argentina dedicates part of the revenue to the social security administration and the national housing fund.
Only Australia, Canada, France, Mexico and the United Kingdom operated carbon taxes in 2019, but Australia,
Canada and France earmarked at least half of the revenue to tax policy changes, indicating that carbon taxes
are seen as part of broader tax reform efforts. Revenues from emissions trading systems are mostly earmarked
for spending on renewable energy and transport, with no G20 country explicitly earmarking any of the
revenues for taxes or social spending in 2019.
The potential for carbon tax revenue is certainly substantial. OECD estimates show that (abstracting from
behavioural responses), increasing the price of carbon emissions to EUR 30 per tonne of CO
2
emissions (a
conservative estimate of the social cost of carbon emissions) would generate additional revenues of about 5%
of GDP in India, about 1% in Brazil, the United States, Canada, Australia, Argentina, Mexico, Turkey, and of
about 0.5-1% in Japan, Spain, Germany, France, the United Kingdom, the Republic of Korea, the Netherlands
and Italy.
Figure 9. Corporate tax rates, 2000-2022
Source: OECD Tax Statistics.
58
Immervoll and Kerschbaumer 2022.
59
Excluding Indonesia, the Russian Federation and Saudi Arabia, but including visiting countries the Netherlands and Spain.
21
Figure 10. Corporate tax revenues as a percentage of GDP, 2000-2022
Source: OECD Tax Statistics.
3. Eliminating illicit financial flows.
Illicit Financial Flows (IFFs) generally involve money laundering, bribery by international companies, tax evasion
and trade mispricing. Stemming IFFs and fighting corruption can be a significant source of fiscal space for socio-
economic development.
Domestic tax base erosion and profit shifting (BEPS) due to multinational enterprises exploiting gaps and
mismatches between different countries' tax systems affects all G20 countries. Developing countries' higher
reliance on corporate income tax means they suffer from BEPS disproportionately. Working together in the
OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are implementing 15 Actions to
tackle tax avoidance, improve the coherence of international tax rules, ensure a more transparent tax
environment and address the tax challenges arising from the digitalisation of the economy.
60
Efforts should be
continued during the Indian presidency to ensure that more government finance is available for closing the
coverage and financing gaps in social protection.
Success in this would alone free up more than ten times the annual total of official development assistance
(ODA) disbursed and received across the globe. Such is the extent of resources that illegally escapes developing
countries every year.
61
There are increased efforts to crack down on money laundering, bribery, tax evasion,
trade mispricing and other financial crimes that are not only illegal but also reduce much-needed revenues for
social protection and work towards the SDGs. For Egypt, it is estimated that combating illicit financial outflows
could on average generate an annual amount equivalent to 3 per cent of GDP; illicit financial outflows from the
country in 2014 were estimated at between 1.9 per cent and 4.7 per cent of GDP.
62
Egypt is one of the few
countries where data are available. To improve measurement of illicit financial and arms flows, UNCTAD is
piloting a project in 8 developing countries, including Nigeria.
60
OECD 2023a.
61
ILO 2019a.
62
Ibid.
22
4. Increasing aid and transfers
Official development assistance (ODA) is defined as government aid that promotes and specifically targets the
economic development and welfare of developing countries. Despite calls for enhanced ODA to support
financing for sustainable development,
63
and agreement on a target commitment of 0.7 per cent of gross
national income (GNI), ODA in fact represented only 0.33 per cent of the combined GNI of the member countries
of the Development Assistance Committee in 2021.
64
Among G20 donor countries, only Germany met the 0.7
target (Figure 11). Not only did donor countries fall short of their commitments; the share of their actual
disbursements of ODA allocated to social protection in 2017 represented a mere 0.0047 per cent of their GNI.
65
To avoid that the “great divergence” between richer and poorer economies continues to characterize the labour
market recovery in 2022,
66
in September 2021, during the General Assembly, jointly with the ILO the United
Nations Secretary General launched the Global Accelerator on Jobs and Social Protection for a Just
Transition. This initiative aims to increase the level and coordination of the multilateral system’s efforts to help
countries create 400 million decent jobs, including in the green, digital and care economies, to extend social
protection coverage to the 4 billion people currently excluded and facilitate just transitions, efforts which are
vital to poverty reduction and achieving the SDGs as a whole.
67
The Accelerator includes three complementary
and mutually supportive pillars:
• Pillar 1 addresses policy dimensions, in particular by developing integrated national employment,
social protection and just transition strategies.
• Pillar 2 addresses the challenge of resource mobilisation, complementing domestic fiscal efforts with
international financial support, including from international financial institutions and public
development banks.
• Pillar 3 aims to enhance multilateral cooperation to build political momentum and strategic support
for the Accelerator.
A transversal, system-wide Technical Support Facility (TSF) will advise on the work under the three pillars
and seek to align financial and technical assistance for a human-centred recovery and sustainable development.
Another option for complementing pillar 2 on financing is the Global Fund for Social Protection launched by
the Global Coalition for Social Protection Floors, the UN Rapporteur on Extreme poverty and Human Rights and
the International Trade Union Confederation (ITUC) and endorsed by the tripartite constituents at the
International Labour Conference in 2021.
68
The Global Fund for Social Protection could be integrated in the
Global Accelerator and it could aim to support countries to design, implement and, in specific cases, to finance
national floors of social protection.
63
United Nations 2015.
64
OECD 2023b.
65
ILO 2021c.
66
ILO 2022b.
67
ILO 2022a.
68
https://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument/wcms_806099.pdf
23
Figure 11. Official Development Assistance as a percentage of Gross National Income, 2021
Source: OECD 2023b.
24
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