The extent to which tax-benefit systems protect people from the risk of poverty

Figure 10 shows how benefits and taxes reduce the risk of poverty for the population as a whole in each of the 18 countries. It shows how much higher poverty rates would be without benefits and if no taxes were paid. This is done in two ways: by including gross public pensions as benefits (the effect is shown in the figure as 'original income') and by including these pensions together with original incomes ('original income plus public pensions'), which focuses attention on the effect of other benefits and taxes (including taxes on public pensions). In either case, poverty thresholds are held constant at the baseline levels.

Figure 10: Poverty risk (60% median household disposable income): effects of benefits net of taxes and (employee/self-employed) SICs on all income (2009 policies)

Countries are ranked in order of the risk of poverty, using the measure of standard equivalised household disposable income. This ranges from around 9% in the Czech Republic to 20% in Greece. Removing benefits (except public pensions) and adding back taxes would increase the risk of poverty considerably in the UK (by 13 percentage points) and in Ireland (by 19 percentage points). Taxes and benefits (excluding pensions) also bring about substantial poverty reductions in the Netherlands (7 percentage points), Belgium (5 percentage points) and the Czech Republic (4 percentage points). However, in Italy and Poland fewer people would be below the poverty line without benefits and taxes than if income is measured after benefits are added and taxes deducted. This is because in these countries taxes on income including public pensions exceed the value of benefits. Benefits are relatively small, and the effect of taxes outweighs them, for those near the poverty line. Once public pensions are also excluded from income, poverty rates are much higher in all countries (around 32-35% in most countries and nearly 40% in Hungary). Public pensions make least difference in the UK and Ireland.