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Social contributions are actual or
imputed payments to social insurance schemes to make provision for social insurance
benefits (see Indicator 18). They may be made by employers on behalf of
their employees or by employees, self-employed or non-employed persons on their own
behalf. The contributions may be compulsory or voluntary and the schemes may be funded or
unfunded. Compulsory social security contributions paid to general government or to
social security funds under the effective control of government form an important part of
government revenue and, although they are not treated so in the SNA, many analysts
(including the OECD's Tax Directorate) consider the payments as being analogous to a tax
on income and so part of a country's overall tax burden. They are important not only in
the sense that they form a significant share of government revenue but because they also
reflect part of the costs of doing business. In many developing countries high social
contributions coupled with low social benefits are often cited as a reason for a large
informal economy.
Definition
Social insurance schemes may be
managed by any sector and the schemes may be funded or unfunded. Moreover the
contributions paid to the schemes may be compulsory or voluntary. Typically the most
important types of schemes are social security schemes; i.e. those imposed, controlled and financed by government. But in many
countries the role of private funded or unfunded schemes is growing.
Social security funds established
for social security schemes are separate institutional units in the SNA, forming a
subcomponent of the government sector. Although contributions to the scheme are
obligatory, payments can be made to the funds on a voluntary basis to qualify for
social security benefits. Social insurance schemes organised by government for their
own employees are classified as private funded or unfunded schemes as appropriate.
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Comparability
Not all countries operate social
security schemes. Some may choose instead to finance social benefits paid by government
through other taxes or revenue; which is one of the reasons why analysts often prefer to
show the totality of taxes and social contributions in calculating the tax burden. But
even these comparisons should be interpreted carefully. Governments may encourage
employers and employees to opt out of social security schemes and instead pay
contributions, even if compulsory, to schemes managed by corporations, thus reducing the
revenues and expenditures of government, without necessarily reducing the well-being of
households. This is one of the reasons why comparisons of taxes on income are often
shown as rates, with the component for social contributions reflecting the compulsory
rate irres-pective of whether the associated scheme is managed by government or
corporations.
In Finland, Iceland and the
Netherlands, some contributions are levied as a function of taxable income (i.e. gross wage earnings after most/all tax reliefs).
Australia and New Zealand do not levy social security contributions.
The figures shown include both
voluntary and compulsory social contributions paid to government.
Source
Online database
Further reading
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Lequiller, F. and D. Blades
(2007), Understanding National Accounts, OECD
Publishing, http://dx.doi.org/10.1787/9789264027657-en.
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OECD (2000), System of National Accounts, 1993 - -Glossary, OECD
Publishing, http://dx.doi.org/10.1787/9789264180871-en.
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UN, OECD, IMF and Eurostat
(eds.) (1993), System of National Accounts 1993,
United Nations, Geneva, http://unstats.un.org/unsd/sna1993.
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| Indicator in PDF |
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| Table |
| 19.1. Social contributions to government |
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| 19.1 Social contributions to government |
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