Rising Social Security Bill

The social security system was first introduced in 1912 in the United Kingdom and then significantly expanded after World War II. However, it was conceptualised in 1601 with the promulgation of the "Poverty Alleviation Law" in the United Kingdom and the "Sickness Insurance Law" in Germany in 1883. In the United States, it was started officially after President Franklin D. Roosevelt signed the Social Security Act on August 14, 1935. Following the Great Depression and World War II, the impact of financial security significantly increased, and as a result, people's lifecycle were affected. Thus, the concept of social insurance and social protection was initiated to reduce old-age poverty due to financial constraints and support post-World War II-affected families. 

As the advocacy for social capitalism increases, the need for social insurance and welfare states is becoming more apparent across the globe. Especially since the 1990s, many countries have embraced social security as a major tool for resource distribution and reducing the wealth gap. However, now it is equally debatable among the scholars. Social security is a compulsion of the state in developed countries, and beneficiaries are also aware of their responsibility to the nation through fair taxation and the protection of social properties. On the other hand, emerging economies are following the trend to achieve the most beneficial welfare state for the people. 

Hot issue 

For developing and least-developed countries, it is a hot issue, and the governments are under pressure to provide social protection to their people. As more people become aware of the different parts of social security benefits, interest groups are also taking advantage of this through political and activist agendas. In the name of social security, people are migrating from different parts of the world to well-established social security system nations. Currently, Canada, the US, the UK, and many European countries are facing high flows of immigrants. This trend of migration would lead to an imbalance in demographic distribution, which ultimately distorts social cohesion and peace.

China, which has established the world's largest social security system with 1.3 billion eligible beneficiaries, has felt the financial burden of social security. It has spent approximately 3.5 trillion yuan in 2021, compared to only 1.1 trillion yuan in 2011 for its social security system. The oldest welfare state, the United Kingdom, spent 298.7 billion pounds in 2021. It has been comparatively stable over the last decade because only 1 billion pounds have been added. The United States spends approximately one trillion dollars per year, while Canada spends 325.3 billion dollars. The largest portion of the public spending increase in Canada is due to an increase in social protection responsibility, which is nearly 50 per cent of total spending increases. 

Their social security system forces lower- and lower-middle-income economies as well to introduce the welfare package. However, in many counties, the social security programme is being used as a tool for vote collection. One such example is found in Nepal where the political parties unveil the old-age allowance scheme ahead of the election. As a result of competition to increase the allowance and provide it at a younger age, the old-age allowance is now provided at the age of 68. According to the National Integrated Social Protection Structure, Nepal has 76 social security schemes in operation under different government institutions. 

The Ministry of Home Affairs (Social Security allowances and relief support), the Ministry of Education, Science, and Technology (school scholarships, Enhanced Vocational Education and Training (EVENT) II, the Ministry of Health and Population (school feeding, poor citizen's medical treatment fund, and child nutrition programme and The Ministry of Urban Development (People's Residence Programme) the main ministries and agencies responsible for implementing the social security programme. Other programmes include the Social Security Fund (social security schemes including medical, accidental, death, dependents, and old age), the Health Insurance Fund (health insurance) and the Employee Provident Fund (contributory savings and insurance programme).

Altogether 13 government institutions are spending 4.86 per cent of the country's economy in 2020/21 to run 76 social protection programmes. From the perspective of budget allocation, about Rs. 188 billion (12.80 per cent of the total budget) is allocated to the social protection. It was only Rs. 6 billion in fiscal year 2014/15. The social security budget has increased by 21.75 per cent in the last seven years (FY 2014/15 to 2020/21). The majority of the social protection budget is allocated to social security allowances (43 per cent), followed by retirement and gratuities (35 per cent), special agricultural production programmes (7 per cent), subsidies in various schemes (4 per cent), and other programmes (11 per cent). 

Political interest

The social security expenditures have increased due mostly to political interest, an increase in life expectancy and an increase in the area of coverage under various protection programmes. In 2016, the government doubled all the social welfare benefits. With the new contribution-based social security system in 2018, the social security programme expanded its coverage, which also added some financial burden to the government. The burden of social security costs is increasing rapidly in Nepal. The constitution guarantees 31 fundamental rights of the people. If the country moves to implement them, its fiscal burden also grows tremendously. 

The low rate of capital expenditure is still a big issue as this has hindered to accelerate infrastructure development and expand basic infrastructure. The general expenditures are rising uncontrollably, posing a big challenge to the economy. The increasing burden of social security may also hamper sustainable development and economic growth as the nature of the social security package is not conducive to economic productivity. To reduce the growing the economic costs of social security, the government should change the system of social protection benefits and connect them to productivity and social capital formation.

(The author is a Ph.D. scholar in economics at the University of International Business and Economics in Beijing. sudankumaroli@gmail.com )