EUROMOD: Overview of Croatian policies

SLAVKO BEZEREDI, Institute of Public Finance, Zagreb

Round table „Application of microsimulation models in the analysis of taxes and social benefits in Croatia”

Institute of Public Finance, Zagreb, February 18, 2016

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Which policies are included?

Social benefits:

• Subsistence benefit (pomoć za uzdržavanje/zajamčena minimalna naknada)

• Unemployment benefit (naknada za nezaposlenost)

• Maternity leave benefit (rodiljna naknada)

• Parental leave benefit (roditeljska naknada)

• Support during the newborn child care (naknada za roditeljsku brigu)

• Lump-sum grant for newborn children (jednokratna potpora za novorođeno dijete)

• Child benefit (doplatak za djecu)

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Which policies are included?

Social contributions:

• Employer social contributions (doprinosi poslodavca)

• Employee social contributions (doprinosi zaposlenika)

• Self-employed social contributions (doprinosi za samozaposlene)

• “Other income” earners contributions (doprinosi na drugi dohodak)

• Pensioner health contributions (dodatni doprinos umirovljenika za zdravstveno osiguranje)

• Credited insurance contributions (doprinosi koje plaćaju institucije)

Taxes:

• Personal income tax (porez na dohodak)

• Surtax (prirez)

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Subsistence benefit

• means-tested benefit

• intended for households whose income is below the “means of subsistence”

• unit of analysis is the household: “the family or other community of people who live together and settle living expenses together, regardless of kinship”

• in 2014, some rules of this benefit have been changed

(pomoć za uzdržavanje → zajamčena minimalna naknada) Who can receive this benefit?

• all persons aged below 15 and above 65.

• persons aged between 15 and 65 must satisfy the conditions for being characterised as unemployed

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Subsistence benefit

Calculation of Means of subsistence:

• the household’s “means of subsistence” are a sum of contributions of eligible household members

• contributions depend on personal characteristics of each member

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2011-2013 2014-2015

Single adult 600 800

Single adult unable to work 850 800

Adult who lives in a family 400 480

Adult who lives in a family, unable to work 550 480

Child aged 0-6 years 400 320

Child aged 7-14 years 450 320

Child aged 15-17 years 500 320

Child aged 18-25 (18-29, in 2014/15) involved in

regular education 500 480

Subsistence benefit

• “Means of subsistence” are additionally increased by: (a) 125 HRK for each child of a single parent (2011-2013) (b) 320 HRK for each single parent (2014-2015)

Household income: • the sum of incomes of all household members • includes all sorts of incomes, excluding:

• lump-sum donations from individuals and legal entities up to HRK 5,000 per year;

• housing benefit, child benefit and lump-sum grant for newborn children,

• allowance and refund of expenses during the education of unemployed

• disability benefits (except disability pension, professional rehabilitation benefit and disability pension for HRVI).

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Subsistence benefit

Benefit amount:

• is the difference between means of subsistence and household income

• since 01/2014, the maximum benefit is set to the level of gross minimum wage in Croatia

• in 01/2014 a “make work pay” measure was introduced: • it is intended for the non-employed working-able persons, whose

households receive the Subsistence benefit for at least one year • if such a person gets employed, it receives 100, 75 and 50% of

Subsistence benefit, in the first 3 months

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Subsistence benefit

EUROMOD assumptions:

• all working-able persons aged between 15 and 65 are regularly report to the Croatian Employment Service, participate in education programmes and show preparedness to accept a job – no information on whether these conditions are satisfied

• “make work pay” element of the policy is not simulated in EUROMOD – no information on whether a person is a benefit recipient for more than one year

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Maternity leave benefit

• unit of analysis is family: consists of partners and own dependent children aged 0 or 1

• intended for working mother: employed or self-employed

• period of receipt is divided into two parts:

(a) The mandatory period, used by pregnant women/mothers, lasts from the 28th day before the expected delivery date to the 70th day after birth

(b) The voluntary period can also be used by the father. It lasts from the end of the mandatory period to the end of the 6th month after birth

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Maternity leave benefit

Benefit base:

• beneficiary’s average “netted SC contribution base”, obtained during the six-month period preceding the work-leave

(a) for employees – the “netted SC contribution base” is gross wage minus employee’s contributions, PIT and Surtax

(b) for self-employed - the “netted SC contribution base” is the base for SC counterfactually taxed by employees’ SC, PIT and surtax

Benefit amount is equal to:

(1) 100% of the benefit base during the whole period (if certain insurance period conditions are satisfied)

(2) the minimum amount is HRK 1,663 (50% of BUB-budgetary base )

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Maternity leave benefit

EUROMOD assumptions:

• children born in the first, second, third and fourth quarter of the year are born in February, May, August and November, respectively – the exact month of birth is not available in the data, but the quarter of the year is known

• the benefit receipt is only granted to mothers for both the mandatory and the voluntary period – according to administrative data less than 3% of recipients are men

• all beneficiaries use the benefit in maximum duration (7 months)

• the benefit duration depends on children’s month of birth:

• example: 2011

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for mothers of… In February in May in August In November

children born in 2011 7 7 6 3

children born in 2010 0 0 1 4

Parental leave benefit

• this benefit can be claimed after the maternity leave

• received by working parents

• the maximum benefit duration depends on two cases:

(1) the child is the 1st or the 2nd in a family => the leave lasts 6 months if it is only used by the mother, or 8 months if mother and father use 4 months each

(2) the child is the 3rd or subsequent child in family or twins (multiples) are born => the leave lasts 30 months and can be also used by mother only, or equally shared by the parents

Benefit amount:

• 100% of the benefit base - during the months 1 to 6 (or 1 to 8, if parents share the leave in equal parts)

• HRK 1,663 - in the remaining period (50% of BUB)

• maximum: HRK 2,661 (80% of BUB)

• minimum: HRK 1,663 (50% of BUB)

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Support during the newborn child care

•Received by parents of newborn children – unable to claim for the maternity and the parental leave benefits

•unit of analysis: partners and own children aged 0 to 3

• the benefit is received from the child’s birth and can last, at most:

(a) 12 months – for the 1st or the 2nd child

(b) 36 months – for the 3rd or subsequent child or twins

•The benefit amount equals HRK 1,663 per month (50% of BUB)

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Child benefit

• monthly means-tested benefit: paid to families with children below a certain age limit

• Beneficiaries are households with dependent children

• Dependent children are:

(a) persons aged up to 15;

(b) persons aged 15 – involved in primary education

(c) persons aged between 15 to 19 – involved in secondary education

(d) persons aged up to 27 – facing severe health issues

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Child benefit Benefit amount per child are:

• the amounts can be increased by:

(a) 25%; if both parents are missing or if they are ‘permanently incapable of independent living’.

(b)15%; if one parent is missing or if he/she is permanently incapable for independent living.

(c) 25%; for child with invalidity

(d) HRK 500; if a household has 3 children

(e) HRK 1,000; if a household has 4 or more children

EUROMOD assumptions:

• the state of ‘permanent incapability of independent living’ is proxied by person’s disability status

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Monthly household income per member 2011-2015

less than HRK 543.14 299.34

HRK 543.14 – 1,119.53 249.45

HRK 1,119.53 – 1,663 199.56

Personal income tax • tax unit: individual who receives income from a taxable income

source

Tax allowances:

• Each tax unit - regular basic personal allowance (osnovni osobni odbitak)

• Persons who receive pensions based on mandatory contributions - pensioner’s basic personal allowance (osobni odbitak umirovljenika)

• regular personal allowance for supported family members – for children and other immediate family members (spouses, parents, parents in law, grandparents, grandchildren)

• People who live in “special areas” - enlarged basic personal allowance and the corresponding enlarged personal allowance for supported family members

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Personal income tax

• Personal tax allowances, in HRK per month:

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2011 2012-2014 2015

Basic personal allowance for non-pensioner 1,800 2,200 2,600

Basic personal allowance for pensioner 1,800-

3,200

2,200-

3,400

2,600-

3,800

Regular personal allowance for

supported family members

(a) each supported non-child member 900 1,100 1,300

(b1) the first child 900 1,100 1,300

(b2) the second children 1,260 1,540 1,820

(b3) the third child 1,800 2,200 2,600

(b4) etc.

(c1) supplement for each taxpayer and supported

member with disability 540 660 780

(c2) supplement for each taxpayer and supported

member with 100% disability 1,800 2,200 2,600

Personal income tax

Tax schedule: • tax schedules rates 2011:

• tax schedules rates (2012-2014):

• tax schedules rates 2015:

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Tax band

Income bracket (HRK per month)

Tax rate Lower limit Upper limit

1 0 2,200 12%

2 2,200 13,200 25%

3 13,200 - 40%

Tax band

Income bracket (HRK per month)

Tax rate Lower limit Upper limit

1 0 3,600 12%

2 3,600 10,800 25%

3 10,800 - 40%

Tax band

Income bracket (HRK per month)

Tax rate Lower limit Upper limit

1 0 2,200 12%

2 2,200 8,800 25%

3 8,800 - 40%

Personal income tax Income source specific one-rate schedules:

• there are several income-specific schedules:

• the personal deduction in taxation of dividends equalled HRK 12,000 per year in 2012-2014; in 2015 this personal deduction was abolished

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Income source Tax base

Tax rates

2011 2012-2014 2015

Rental income gross income 12% 12% 12%

“Other income” gross income minus pension

contributions 25% 25% 25%

Dividends gross income above the

amount of personal deduction 0% 12% 12%

Interest income gross income 0% 0% 12%

Personal income tax

• “other income” related to honoraria for original works of scientists, journalists, artists, etc. are exempted from SC and special “standardised costs” are deducted in calculation of tax base

• due to lack of information in SILC data these exemptions are not simulated

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