In Europe, the governments and social insurances of each country protect the population by offering various social benefits. Countries' expenditure on these benefits vary according to their economic situation, the population’s health status and their demographic structure, among others. The countries with the highest social expenditure are found mainly in Northern and Western Europe. It is lower in the Eastern European countries.
The divide between east and west
Financial data are expressed for relevant international comparisons:
1) PPP per inhabitant in Swiss francs: purchasing power parity (PPP) making it possible to neutralise differences in price levels between countries. By definition in Switzerland, 1 CHF = 1 CHF PPP.
2) as a percentage of the gross domestic product (GDP). The percentage share of social benefits in the GDP indicates the relative weight of social benefits in relation to the country's economic activity.
In 2018, Switzerland's expenditure on social benefits amounted to CHF 20 795 per inhabitant and is among the highest in international comparison. This amount corresponds to 24.6 % of the gross domestic product (GDP), which places Switzerland in the middle of the scale.
Strongest social security system in the wealthy countries
As can be seen from the graph below, spending on social benefits is generally higher in countries with a high GDP (e.g. Denmark) than it is in countries with a lower GDP (e.g. North Macedonia). Switzerland is the third most prosperous country on the European continent (GDP per inhabitant: CHF 85 000). Its social expenditure as a percentage of the GDP (24.6) is in an intermediate position close to the European Union average (EU-28: 26.5%).
To facilitate the reading of certain graphs or tables, the results are grouped together and the names of the countries are abbreviated:
- Northern Europe: Denmark (DK), Finland (FI), Iceland (IS), Norway (NO), Sweden (SE);
- Western Europe: Austria (AT), Belgium (BE), France (FR), Germany (DE), Ireland (IE), Luxembourg (LU), Netherlands (NL), United Kingdom (UK);
- Southern Europe: Cyprus (CY), Greece (EL), Italy (IT), Malta (MT), Portugal (PT), Spain (ES);
- Eastern Europe: Czech Republic (CZ), Estonia (EE), Hungary (HU), Latvia (LV), Lithuania (LT), Poland (PL), Romania (RO), Slovakia (SK), Slovenia (SI), Bosnia and Herzegovina (BA), Bulgaria (BG), Croatia (HR), Northern Macedonia (MK), Serbia (RS).
The correlation between the GDP per inhabitant and social expenditure as a percentage of the GDP is confirmed from year to year. Several factors play a role: the interactions between the economy and social benefits, but also the age structure of the population, types of household, the level of unemployment, wage or gender inequalities in the labour market and poverty.
Per inhabitant social expenditure is increasing almost everywhere
An increase in social expenditure can also be observed in most European countries (see graph below). In Switzerland, social expenditure per inhabitant (and at constant prices) increased by +1.6% between 2009 and 2018.
Social expenditure in Greece decreased sharply between 2010 and 2014 (-20%) and this was in a context of an austerity budget which particularly affected health care and disability benefits. Since then, social expenditure has remained stable.
In most countries this development is mainly due to the increase in social benefits related to old age and health care. Two factors seem to have contributed to this development.
1) Economic development: in Europe, GDP growth and increased social expenditure per inhabitant are strongly correlated. Between 2000 and 2018, all European countries experienced more or less significant economic development: in Switzerland, for example, the GDP per inhabitant grew by an annual average of 1.0% (at previous year's prices). With more economic resources at its disposal, a country can, in principle, strengthen its social security system. In this way, OASI pensions are adapted to economic development by way of the mixed wage and price index.
2) Population ageing: In all countries surveyed, the percentage share of the population aged over 65 years has increased between 2000 and 2018. For example, in Switzerland it rose from 15.3% to 18.3% and in the EU from 15.6% to 19.7%. That said, the relationship between population ageing and increased expenditure is not clear when only these two variables are considered.
Economic developments and social expenditure
Of the 23 countries with complete time series, 16 saw their social expenditure increase faster than their economic activity (GDP) between 1995 and 2018. For example, in Switzerland, social benefits as a percentage of the GDP increased by 4.8 points. Greece and Iceland among others saw a faster increase in social expenditure (6.5 and 5.6 percentage points of the GDP).
The remaining 7 countries registered negative growth of social expenditure expressed as a percentage of gross domestic product (GDP). Sweden and Ireland saw a decline of 3.8 points.
For most Eastern European countries, data are available from 2000 onwards. Between 2000 and 2018, social benefits as a percentage of the GDP in these countries remained stable at around 18% on average and against the context of an economic catch-up.
In phases of recession, as in 2009 or in 2020, the GDP, by definition, declines. At the same time, expenditure on social benefits, especially those paid to the unemployed, is increasing. In times of an economic boom, the GDP picks up while expenditure on social benefits declines. From an economic point of view, this is important because the increase in social benefits during a recession reduces the loss of household income, supports consumption and thus limits the extent of the recession itself. Social expenditure thus plays a stabilising role in the economy.
Benefits paid mainly for old age and sickness
The many social benefits provided in Switzerland and other European countries can be classified by the type of risk or need that they cover (social security by function).
In financial terms, old age represents the first area of intervention of the social security system. This is true in Switzerland (10.6% of the GDP) as in most other European countries (EU-28 average, 10.8% of the GDP). In general, the higher the share of the older population, the higher this expenditure.
Social expenditure on health is in second place. In Switzerland, benefits paid in this area amount to 7.8% of GDP, in Germany 10.1%, in France 9.0% and in Italy 6.4%.
Next in importance are expenditure for families/children, the disabled and survivors (in the EU-28: 2.2%, 2.0% and 1.4% of the GDP, respectively). In Switzerland, disability benefits (2.1% of GDP) are higher than those for families/children (1.5% of the GDP).
Both in Switzerland and in the European Union, unemployment, social exclusion and housing absorb percentages of the GDP which are close to or below 1%. The good economic situation in 2018 has contributed to the low level of unemployment benefits in Europe.
The "social exclusion" function includes various benefits in cash or in kind, specifically intended for people whose financial, health, dependency or labour market integration difficulties tend to be cumulative or self-perpetuating. This category excludes social benefits that can be clearly classified elsewhere. In Switzerland, this function includes most of the expenditure on social assistance, asylum and refugee policies, as well as expenditure on victim support, among other things.
Taxes and social contributions finance social security
Social security expenditure is funded by different sources (“receipts”). The most important are social contributions and government funding.
In Switzerland, social contributions from employers and protected persons account for 67% of receipts. The share borne by protected persons, in particular employees, is 37% and that of employers 30%. By way of comparison, in the EU, these two types of social contributions amount to 20% and 35% respectively.
The second most important financial source is public contributions. In Switzerland, these account for 23% of the total receipts. This share is relatively low in international comparison: public contributions are less important only in four countries (e.g. in Poland with 18%).
In Switzerland, property income is a not insignificant source of financing. This accounts for 10% of social security receipts. These are mainly generated on the financial and real estate markets, particularly by pension funds. In three European countries in particular, the share of property income is higher than in Switzerland: e.g. in the Netherlands, 15%.
Other statistics on financial flows of social protection
The following statistics cover certain financial aspects of social security in both Switzerland and in international comparison. You can find further information in the PDF document in the statistical bases (available in French, German or Italian).
- European system of integrated social protection statistics (ESSPROS)
The FSO's TSSA are the implementation of the ESSPROS in Switzerland. This statistic is coordinated by Eurostat.
- Social Expenditures Database (SOCX)
This statistic is compiled by the OECD in cooperation with Eurostat and shows expenditure on social security by the OECD member countries.
- Government expenditure by function
This statistic is published by the OECD and is based on the IMF's international standards. It enables international comparison of public finances including public expenditure on social security.
- National Accounts
This statistic shows a country's economic activities based on the European System of National Accounts (ESNA 2010). It can be used to determine the most important cash flows in relation to social security.
- System of Health Accounts (SHA)
The System of Health Accounts (SHA) is a composite statistic concerning cash flows in the health sector.
Statistical sources and concepts