Reducing out-of-pocket costs to improve the adequacy of minimum income protection? Reference budgets as an EU policy indicator: The Belgian case

The right to adequate minimum income protection is one of the key principles included in the European Pillar of Social Rights (EPSR). The EPSR takes a right-based and normative approach, aiming specifically at fulfilling people’s essential needs, not only by guaranteeing sufficiently high income levels, but also by promoting labour market inclusion and access to affordable goods and services of good quality. This paper takes the EPSR as a starting point to propose a needs-based indicator that assesses the adequacy of minimum income protection including these three dimensions in a comprehensive way. We argue that Reference Budgets (RBs), priced baskets of goods and services that represent an adequate living standard, are well-suited to construct such an indicator. To illustrate this empirically, we use RBs for adequate social participation in Belgium which have been constructed for the first time in 2008 and have been regularly updated since then. Through a combination of hypothetical household simulations of essential out-of-pocket costs and designated tax-benefits for families living on different minimum income schemes, we are able to assess the adequacy of minimum income protection for a range of household types over the period 2008-2017. The paper shows that, the proposed indicator is a useful policy tool for both ex-ante and ex-post evaluations of the adequacy of social policy measures in light of the social protection and inclusion rights included in the Pillar. Starting from a framework of what it means to live a life in human dignity, RBs reveal how adequacy of minimum incomes and incentives to work not only depend on the level of social benefits and minimum wages but also on the costs people need to make to access essential goods and services.