12 Adjusting social welfare and social policy in Central ......12 Adjusting social welfare and...

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12 Adjusting social welfare and social policy in Central and Eastern Europe: growth, crisis and recessionBorbála Kovács, Abel Polese and Jeremy Morris

Despite the shared history of socialist welfare state adaptation, there is consensus among scholars that Central and Eastern European (CEE) welfare states do not conform to either a putative post-socialist welfare state type or to Esping-Andersen’s (1990) welfare regime typology developed for advanced capitalist welfare states (Deacon 2000; Fenger 2007; Aidukaite 2009; Inglot 2009). This is not surprising considering that welfare states in CEE are but a few years younger than their Western neighbours (Haggard and Kaufman, 2008; Inglot 2008; Mares and Carnes 2009) and that their historical evolution – despite their Bismarckian foundations, the homogenizing influence of the soviet model and the emergency, ad hoc and inconsistent institutional adjustments during the first two decades of post-socialism – has been as complex and diverse as that of their advanced capital-ist counterparts (Inglot 2008, 2009; Cook 2010). This diversity is observable not only in terms of variations in the salience of institutional legacies from different historical periods across welfare domains, the timing, dynamics and direction of welfare reforms after the dissolution of state socialism and welfare state size, but also variations in the resulting architectures of mixed economies of welfare across policy domains and in the structure of inequalities and social outcomes. We agree, therefore, with Cerami’s (2009, p. 51) assessment that welfare states in the European post-socialist and post-soviet space are best understood as ‘unique hybrids’, moreover, likely on diverging paths of develop-ment (see also Cook 2010; Deacon and Standing 1993; Orenstein and Haas 2002; Potucek 2008; Haggard and Kaufman 2008).

As such, these welfare states may be grouped together at best only on the most general grounds and without sensitivity to differences in magnitude and kind. The shared Bismarckian and soviet-inspired institutional legacies are one broad similarity which might invite arguments of greater similarity than dissimilarity, although Inglot (2008) con-vincingly outlines the institutional variations that persisted despite these. The experience of welfare state adjustment during the 1990s, characterized by ad hoc, emergency institu-tional and policy transformations (Nunberg 1999; Deacon 2000, p. 149; Sotiropoulos and Pop 2007; Inglot 2009) and a highly volatile, cyclical expand-then-retrench, stop-and-go reform process during this period (Sotiropoulos et al. 2003; Inglot 2009; Szikra and Tomka 2009; Cook 2010) may also be cited as another shared feature of CEE welfare states, although again, scholars have highlighted variations certainly in degree (see Cerami and Vanhuysse 2009). Those emphasizing similarities over differences could also cite a pro-pensity towards cushioning social policy adjustments in the early stages of post-socialist welfare state reform, although selective in scope, followed by path-departing institutional innovations during the late 1990s and 2000s (Vanhuysse 2006; Cerami and Stănescu 2009; Cook 2010) and the role played by international organizations in designing policy options

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Adjusting social welfare and social policy in Central and Eastern Europe 195

and in the process of these reform episodes (Orenstein 2008; Cook 2007, 2010; Deacon and Stubbs 2007; Pop 2013). For most – though, again, not all – post-socialist welfare states, another shared experience may be what has been seen as the inexorable influence of Europeanization or what Orenstein and Haas (2002, p. 6) termed ‘the Europe effect’ (Lendvai 2008; Potucek 2008, p. 80), especially during the 2000s. Finally, the presence of informal exchanges and transactions present not only in economic relationships, but also social welfare financing and provision might be another institutional feature which might be cited as an example of similarity rather than difference (Cook 2007; Polese et al. 2014; Stepurko et al. 2015b). In addition, these broad commonalities may be extended with a list of domestic social and economic pressures on welfare states that post-socialist and post-soviet economies have shared, such as spurts of economic growth interrupted by years of negative growth, especially after the recent crisis, fast-paced population ageing, accelerated de-industrialization and its social implications (see, for instance, Iversen and Cusack 2000), high rates of inactivity among the working-age population and poverty and, not least, informal economic activity and distrust in public institutions (especially Lendvai 2008; Orenstein 2008; Williams and Schneider 2016).

Still, a closer look at the different institutional starting points, restructuring paths and social outcomes across this encompassing group that European post-socialist and post-soviet welfare states constitute reveals that they in no way conform to a single type of welfare regime (for a review of this argument, see also Fenger 2007). As such, this category – CEE welfare states – is a convenient, but misleading construct. It is neither inclusive of all European welfare states which might share similar origins and pathways, nor is it sufficiently narrow to denote welfare states which are more similar to each other in institutional architecture and social outcomes than dissimilar. The criteria of defining CEE welfare states – whether geographically, institutionally, politically or economically – may also be misleading and unconvincing. If we take on board Fenger’s (2007) more recent welfare regime typology, 15 years ago these welfare states could be grouped into three different types: a former USSR-type regime including the Baltic welfare states, a post-communist European type (including the Visegrad four, Bulgaria and Croatia) and the developing welfare state type comprising Romania alongside non-European Union (EU) members Moldova and Georgia (see also Cerami and Vanhuysse 2009), based on macroeconomic and spending indicators, socio-economic outcome indicators and trust. However, with the growth years of the mid-2000s and corresponding welfare state expan-sion as well as a result of the policy responses to the fiscal crisis and ensuing recession, the ‘unique hybrids’ of the early 2000s have undergone further change, possibly in diverse directions. Recent analyses on social policy adaptation in the context of ‘permanent austerity’ (Pierson 2001), further squeezed by the fiscal pressures of the late 2000s, have highlighted a mixed picture when it comes to shoring up the concentrated social risks brought on by the economic downturn.

Despite the absence of a post-socialist welfare state type, we argue that in terms of the general direction of welfare state change and in light of social outcomes, retrench-ment in its many forms is the most frequently observed mode of transformation, that is, ‘policy changes that either cut social expenditure, restructure welfare state programmes to conform more closely to the residual welfare state model, or alter the political envi-ronment in ways that enhance the probability of such outcomes in the future’ (Pierson 1994, p. 17). Residualizing welfare provision has amounted to what Ferge (1997) termed

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196 Handbook of European social policy

‘the individualization of the social’, although in a selective and differentiated manner for different socio-economic groups (see Deacon and Standing 1993; Ferge 2001; Cook 2007, pp. 9–10, 2010; Potucek 2008, pp. 84–5; Bohle and Greskovits 2012, pp. 30–31). In response to residualizing and unequally accessible welfare provision, social risks and the emergence of diverse risk profiles has led to the flourishing of informal exchanges and transactions as a means of survival and, equally importantly, as integral parts of mixed economies of welfare in post-socialist and post-soviet spaces (see Polese et al. 2015). We have argued elsewhere and reiterate here that rather than just being an inheritance from socialist and soviet times, informality today, including in social welfare provision, is here to stay as part of a particular path to modernity, animated by the political, economic and social processes that together have stood for ‘transition’ (Polese et al. 2014, 2015; Morris and Polese 2014, 2015). Although Cook (2007, p. 3) states that ‘declines and arrears in social payments, corruption among poorly paid service providers in health and educa-tion, and exclusion of low-income groups from access’ would have been an outcome of maintaining pre-1989 social welfare arrangements, we argue that it is exactly because of spending cuts, the curtailment of benefit programmes, the restructuring of insurance systems and the rationalization of public welfare programmes and services that post-socialist welfare states are riddled with these problems, although to varying degrees and in different ways across welfare domains.

Considering the consensus in the literature regarding the diversity that European post-socialist welfare states exhibit, we thus propose a closer examination of two post-socialist welfare states, each representing a different welfare regime model in the geographic region of Central and Eastern Europe based on Fenger’s (2007) typology: Hungary representing the post-communist European type and Romania representing the developing welfare state type. The analysis, focusing on the past ten years of social policy adaptation in the area of old age pensions, social insurance, labour market and family policies, highlights the pervasiveness of an exclusionary welfare politics directed at the most disadvantaged in society, although this group varies by regime (see Bohle and Greskovits 2012). We argue that post-socialist retrenchment has not led to convergence on the liberal welfare state model in part because the Bismarckian foundations of these welfare states continue to ensure reliable (although not necessarily the best) social welfare for labour market insiders and in part because the provisions put in place for the most vulnerable in society are, by comparison, peanuts. That is, post-socialist welfare states serve best not their most vulner-able clients, as in liberal regimes, but the new middle classes (see also Bohle and Greskovits 2012, pp. 30–36), constituting dual welfare regimes comprising what we term a ‘formal insecurity’ system for the most disadvantaged and an encompassing system for the middle classes. The politics of ‘differentiated distribution’ (Orenstein 2008, p. 83), which lay at the heart of the social contract between the paternalistic and oppressive party-state and the quiescent tovarishi, did not disappear after 1989, but has been recast over the past 25 years.

THE POLITICS OF GROWTH, CRISIS MANAGEMENT AND RECOVERY BETWEEN 2002 AND 2014

For the post-socialist economies of Central and Eastern Europe, the period between 2000 and 2007 was one of high-growth, as in the rest of Europe (Marer, 2013), with the excep-

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tion of Hungary (Figure 12.1). Here, low growth was the outcome of a mixture of growth-slowing macroeconomic policies, including high interest rates, high deficit spending and exceptionally high sovereign debt (Bohle and Greskovits 2012, pp. 240–42; Marer 2013; Győrffy 2015). This was compounded by strong party polarization and what Bohle and Greskovits (2012) called ‘cut-throat party competition’, making structural reforms par-ticularly unattractive for the socialist-led governments of the mid-2000’s. Late reformers – Bulgaria and Romania – registered, on average, higher growth rates, between 6 and 8.5 per cent annually during 2002–08. Marer (2013) explains that the high growth rates in these two countries were in part explained by domestic market expansion rather than export competitiveness, driven both by capital inflows and fast credit market expansion (see also Bohle and Greskovits 2012, p. 225, table 6.1), leading to credit and housing bubbles, which proved disastrous when the economic crisis occurred in 2008 (Győrffy 2015).

High levels of FDI, especially in the financial and real estate sectors, trade deficits and large external debts have been seen as the main three macroeconomic vulnerabili-ties of post-socialist economies when the crisis hit in 2008 (Bohle and Greskovits 2012; Marer 2013; Győrffy 2015). That is, the Romanian (and Baltic) growth model hinging on domestic market expansion, driven by imports at the cost of high trade deficits, and rising (instead of decreasing) unit labour costs, driven by fast income increases supported by financialization, amounted to the most significant vulnerability in the context of the

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Note: Hermann (2014, p. 113) reports for Hungary a –0.1 growth rate for 2013 instead of the World Bank’s 1.9 per cent and for Romania a growth rate of only 1.6 per cent for 2013 instead of the World Bank’s 3.5 per cent.

Source: World Bank data, accessed 20 February 2016 at http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display5default.

Figure 12.1 Annual growth rates as a percentage of GDP in a selection of post-socialist economies, 2002–14

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crisis. Staehr (2010) comments that these vulnerabilities engendered an indirect effect of the crisis on public spending: instead of the need to bail out banks, the vast majority of post-socialist governments faced budgetary problems arising from the effects of slowing economic activity, rising unemployment, high interest rates and pressures to devalue their currencies.

Most post-socialist countries registered a single year of negative growth during the 2003–11 period, although Romania and Estonia saw two years, in 2009–10 and 2008–09, respectively. Still, of all post-socialist economies, only Hungary, Latvia and Romania had to turn to the international financial institutions for balance-of-payments assis-tance during 2008–09, Hungary owing to exceptionally high deficits preceding the crisis (Costello et al. 2011; Marer 2013; Győrffy 2015). Bohle and Greskovits (2012, p. 224) have argued that the reasons for this were not primarily economic in nature: Romanian and Hungarian gross domestic product (GDP) contractions were substantial, but certainly not the highest among the post-socialist member states. Instead, the explanations seem political. In Hungary, despite efforts of the Gyurcsány government to enact austerity measures in the face of mass protests after 2006, the 2008 crisis caught the country with a large fiscal deficit and, despite Hungary’s typical trade surplus during the 2000-2008 period (Marer 2013), a trade deficit (Bohle and Greskovits 2012). In Romania, the Boc government came to power as the first signs of the crisis were showing, but months after the outgoing liberal-led Tăriceanu government enacted increases in old-age pension benefits, paid parental leave benefits1 and public sector wages (twice in 2008). As in Hungary, these benefit increases reduced opportunities for expenditure cuts and policy reversals in anticipation of the crisis, forcing Romania to appeal – as its neighbour – to the international financial institutions for assistance in early 2009.

Between 2006 and 2013, the EU-28 average for total general government expenditure went up from 45.5 per cent to 48.5 per cent of GDP, peaking – owing to the crisis – in 2009–10. Most post-socialist countries exhibit similar patterns, although Hungary stands out as the only post-socialist economy where government expenditure rose as early as 2006–07, with the crisis leading to only a very small increase, and expenditure levels remaining at 2005 levels (see Table 12.1). Romania – alongside Bulgaria, the Czech Republic, Latvia and Lithuania – exhibited relatively flat expenditure levels between 2005 and 2013, with under 5 per cent increases during the most difficult years.

Patterns of total government expenditure across welfare sectors show a slightly dif-ferent picture, expenditure oscillations being much smaller over time and rarely showing significant expenditure expansion. Table 12.2 shows that Hungary’s total expenditure in social protection remained relatively flat between 2005 and 2013, not least as a result of the austerity measures enacted as part of the stand-by agreement with the International Monetary Fund (IMF). As with general government expenditures, defunding is evident in healthcare and education during this period. In contrast, Romania increased total spend-ing in health care and, to a lesser extent, social protection, with education undergoing defunding. Both these countries’ experiences differ from the Czech story, which closely approximates to the EU-28 trend: mild increases in total government expenditures as a percentage of GDP across all these welfare sectors. Still, when total government expendi-tures are disaggregated, defunding across social service sectors seems to have taken place especially in central government expenditures.

Changes in central government expenditure and social security funds by welfare

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domain for Hungary and Romania during 2005–13 also differed. In Hungary, central government expenditure rose from 32.6 per cent to 37.5 per cent of GDP between 2005 and 2013, a notable increase when compared to the EU-28 average (Table 12.2). This trend, however, only holds in health care, as central government expenditures in educa-tion dipped slightly and in social protection declined from an 8.4 per cent peak in 2009 to 4.8 per cent in 2013. Hungary was among the post-socialist countries which, along-side Romania and the Baltics, cut public sector wages, explaining these trends in central government expenditures in part (Hermann 2014). At the same time, total social security funds overall increased only slightly in Hungary, although in health care a slight dip was followed by recovery to 2005 levels by 2013 and in social protection a slight peak was also followed by a return to 2005 levels. Hungary achieved this through rationalizing measures affecting pensions and other social security benefits (Hermann 2014; Győrffy 2015), that is, a host of clear-cut retrenchment strategies, negatively affecting those at the bottom of the income distribution and in the more insecure private sector (Köllő 2011) (see below).

By comparison, Romania seems to have managed central government spending differ-ently: after a peak in 2009, Romanian total central government expenditures stabilized at their 2005 levels, as did central government social protection expenditure. However, in health care – in contrast to Hungary – central government expenditure was cut by 50 per cent between 2007 and 2013 and a decline is also evident in education. As already noted, freezes on public sector employment, public sector wage cuts, pension payment cuts and cuts in, and discontinuations of, family cash benefits enacted in 2010 contributed to this (Hermann 2014; Mediafax 2010a). As far as social security funds are concerned, Romania registered peaks in 2011 in health care and in 2009 in social protection, respectively, but never reverted to pre-crisis levels, as Hungary, in part as a result of the introduction of the

Table 12.1 Total general government expenditure as percentage of GDP, 2005–13

Total general government expenditure

2005 2006 2007 2008 2009 2010 2011 2012 2013

EU-28 45.5 44.9 46.4 50.3 49.9 48.5 48.9 48.5Bulgaria 37.3 34.2 38.2 37.7 40.6 37.4 34.7 35.2 38.3Czech Republic 41.8 40.8 40.0 40.2 43.6 43.0 42.5 43.8 42.0Estonia 34.0 33.9 34.2 39.8 45.7 40.4 38.0 39.7 38.9Croatia 45.2 45.1 44.9 44.7 47.3 47.1 48.5 47.0 47.7Latvia 34.2 36.0 33.9 37.0 43.4 44.2 38.9 36.6 36.1Lithuania 34.1 34.3 35.3 38.1 44.9 42.3 42.5 36.1 35.5Hungary 49.8 51.9 50.2 48.9 50.8 49.7 49.9 48.7 49.7Poland 44.4 44.7 43.1 44.4 45.2 45.9 43.9 42.9 42.2Romania 33.4 35.3 38.3 38.9 40.6 39.6 39.2 36.4 35.2Slovenia 44.9 44.2 42.2 44.0 48.5 49.2 49.8 48.1 59.7Slovakia 39.3 38.5 36.1 36.4 43.8 42.0 40.6 40.2 41.0

Source: Eurostat, general government expenditure by function (COFOG) [gov_10a_exp], accessed 20 February 2016.

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19.5

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garia

4.9

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minimum pension in 2008–09,2 a commitment that the Boc government was able to keep as a result of the financial assistance of the international financial institutions.

In summary, while government spending in Hungary seems to have benefited central government bureaucracy in areas other than social welfare, Romania exercised budgetary restraint by substantially cutting public sector wages but introducing a minimum social pension and, after a temporary cut in a host of cash benefits in 2010, introducing increases and new cash benefits to various social groups starting in 2012, thus increasing social security funds (see also Bohle and Greskovits 2012).

Most scholars agree that the crisis and recession years might have increased the size of the informal economy, that is, the diversity of otherwise not illegal economic and welfare activities which, however, do not show up in ‘the books’ (Semjén and Tóth 2011; Schneider 2013). However, Schneider (2013) provides estimates for the size of the informal economy for the 2008–14 period, suggesting the opposite trend.

INFORMALITY, WELFARE AND POLICY-MAKING

An aspect of economic life pertinent to social policy-making that can be considered idi-osyncratic to Eastern Europe is the overwhelming presence and influence of informality in the region. Table 12.3 reports the estimated size of informal or shadow economic activities as share of the national GDP in CEE as calculated by Schneider and others (Schneider et al. 2010; Schneider 2012, 2013). As a term of comparison we provide the share of informal

Table 12.3 Size of the informal economy, 2008–14

2008 2009 2010 2011 2012 2013 2014 Average

Bosnia 33.4 34.2 33.6 32.9 32.1 30.6 30.1 32.4Estonia 29.0 29.6 29.3 28.6 28.2 27.6 27.1 28.5Croatia 29.6 30.1 29.8 29.5 29.0 28.4 28.8 29.2Hungary 23.0 23.5 23.3 22.8 22.5 22.1 21.6 22.7Latvia 26.5 27.1 27.3 26.5 26.1 25.5 24.7 26.2Lithuania 29.1 29.6 29.7 29.0 28.5 28.0 27.1 28.7Poland 25.3 25.9 25.4 25.0 24.4 23.8 23.5 24.8Romania 29.4 29.4 29.8 29.6 29.1 28.4 28.1 29.1Russia 41.2 41.8 41.0 40.5 39.6 39.1 38.7 40.3Serbia 30.1 30.6 30.1 29.6 29.1 28.5 28.1 29.4Slovakia 16.0 16.8 16.6 16.0 15.5 15.0 14.6 15.8Slovenia 24.0 24.6 24.3 24.1 23.6 23.1 23.5 23.9Czech Republic 16.6 16.9 16.7 16.4 16.0 15.0 15.3 16.2Ukraine 46.2 46.2 45.1 44.4 43.8 43.1 42.5 44.5For comparisonSwitzerland 7.9 8.3 8.1 7.8 7.6 7.1 6.9 7.7Portugal 18.7 19.5 19.2 19.4 19.4 19.0 18.7 19.1USA 7.0 7.6 7.2 7.0 7.0 6.6 6.3 7.0OECD average 19.9 20.4 20.1 19.7 19.1 18.8 18.6 19.6

Source: Schneider (2012, 2013); Schneider et al. (2010).

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economies in other Organisation for Economic Co-operation and Development (OECD) countries and the OECD average.

Starting from the acknowledgement that informality plays a pivotal role in the social, economic and political life of states and citizens in the region, a growing body of lit-erature has engaged with the formal–informal dichotomy. Just as informality exists alongside formal economic activities, so it is also a function of them (for example, out-sourcing to non-tax paying self-employed sellers), welfare provision often cuts across the formal–informal divide and encompasses services that are both documented and ‘off the books’. Thus minimal, statutory primary health care services may be provided formally, with informal out-of-pocket payments for extra services solicited within the same provider–patient relationship. Scholars have illustrated how such informal arrange-ments become ‘institutions’, providing alternative channels of access to some forms of welfare (Sayfutdinova 2015), including health care (Wamsiedel, 2013; Stepurko et al. 2015a, 2015b) and formal childcare (Kovács, 2015b). A key finding is that such infor-mal provision, like formal provision, mainly benefits the middle classes and those with more endowed and wider social networks. Another implication of growing inequality in the coverage of and access to a range of social services more generally has been the emergence of informal welfare arrangements through which families, households and communities try to cope with the social risks that residualization brings. The high level of informality also means the capacity, although not necessarily the willingness, to create alternative health care, childcare and other forms of care structures (Kovács 2014; Morris and Polese 2014; Stepurko et al. 2015a, 2015b), but also citizens’ complete avoidance of the formal system of welfare provision (see, for instance, Knudsen 2014, 2015; Davies and Polese 2015). The latter is often motivated by the need to disengage with state bureaucracy in terms of taxation and registration linked to economic activities undertaken informally.

Studies of the informality–welfare relationship can help to better understand the macro picture. Patterns of informality have led to the conceptualization of informal social capital by Pichler and Wallace (2007), who explained the apparent lower capacity of Eastern European citizens to engage with societally relevant activities. They suggested that lower patterns of social capital in Eastern Europe were due to the lack of formalization of organizations and activities rather than a societal tendency to be less civically active. This is to say that any reforms, and studies on changes in social and welfare policies in the region, should consider the role that informal practices and informal economies, which have been shown to have a substantive macroeconomic significance, play in the success, or failure, of social policy reforms.

CHANGES AND ‘REFORMS’: TAXATION, PUBLIC SECTOR EMPLOYMENT AND THE SOCIAL SECURITY SYSTEM

Fenger’s (2007) welfare regime typology – an estimation of the situation for the 1997–2003 period – builds on three sets of variables: (1) government spending and spending on the largest welfare programmes as well as incomes from social security contributions and taxation as a percentage of GDP; (2) socio-economic indicators, among others income inequality, female labour market participation, unemployment,

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life expectancy, infant mortality etc.; and (3) levels of social trust. Hungary, as the representative for the post-communist European regime type, has had higher total government spending, has spent more on health care, education and social protection, the share of social contributions has been notably higher than that for the developing welfare regime, for which Romania is a representative, although the level of individual taxes is comparable to that in the latter cluster of welfare states (Fenge 2007, p. 23). Socio-economic outcome indicators tend to be the same in the two regime types, apart from inequality and infant mortality – higher in developing welfare regimes, including Romania – and macroeconomic indicators, notably inflation, also vary, although dif-ferences in aggregate growth – as shown in the previous section – are small. Finally, trust is higher in the post-communist European regimes compared with the developing welfare state regimes.

Some of these differences have been maintained after 2003, certainly in comparative terms. As Table 12.1 shows, Hungary’s total government expenditure has been signifi-cantly higher than that of Romania even after 2003, although it should be noted that Hungary has been an outlier even among its post-communist European types in this regard, whereas Romania has been much more similar to Bulgaria, Slovakia, Latvia and Lithuania and, incidentally, Ireland (data for 2007, Marer 2013, p. 253). Government expenditure on health care, education and social protection – summarized in Table 12.2 for the 2005–13 period – also shows that Hungary consistently outspent Romania by around 60 per cent. Government consumption expenditures, that is, public sector employ-ment and other consumption, have also been consistently higher in Hungary, slightly decreasing from 22.1 per cent of GDP in 2004 to 20.2 per cent in 2014, compared with 16 per cent in Romania in 2004 down to 13.9 per cent of GDP in 2014 (Eurostat 2016). Payroll tax burdens have been converging in the two countries over the past ten years, including as a result of a flat-rate personal income tax set at 16 per cent in both countries (in Romania in 2005, in Hungary in 2011) (Appel and Orenstein 2013). Perhaps more interestingly, convergence seems to also be the case when it comes to the aggregate size of social contributions as a percentage of government revenue (see Table 12.4). Trends, however, have been slightly different: Romania started out with higher social contribu-tions to government revenue, but after a peak in 2007 declined to levels lower than those

Table 12.4 Social contributions and tax revenues for Hungary and Romania between 2003 and 2012

2003 2005 2007 2009 2011 2012

Social contributions as % of government revenueHungary 34.9 34.9 35.2 31.5 27.0 31.6Romania 38.1 38.6 40.4 32.6 29.3 28.2Tax revenues as % of GDPHungary 20.7 19.9 21.4 23.3 21.0 22.8Romania 12.2 12.1 11.7 16.0 17.6 18.5

Source: World Bank data for social contributions (% of revenue), accessed 24 February 2016 at http://data.worldbank.org/indicator/GC.REV.SOCL.ZS/countries?display5default for social contributions and http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS/countries?display5default for tax revenues.

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in Hungary, whereas Hungary registered only a slight decline between 2003 and 2013, current levels exceeding those in Romania.

Tax revenues as percentage of GDP, historically lower in Romania, remain at differ-ent levels, but what stands out is, again, the difference in patterns over time: while in the Hungarian case values have been oscillating around the 21 per cent mark since 2003, in Romania tax revenue as percent of GDP went up by 50 per cent between 2003 and 2012, from 12.2 per cent to 18.5 per cent, with only a very small slump during the crisis years. In Hungary, this apparent consistency hides significant changes in the structure of tax revenues, especially after the electoral victory of the Fidesz in the 2010 elections: in addition to the introduction of flat-rate income tax, but with substantial tax deductions for families with many children, the Orbán cabinet also lowered tax rates for small and medium-sized enterprises. In anticipation of the corresponding decline in tax revenues, it essentially nationalized the second pillar of the pension system in November 2010 and in 2011 increased value added tax (VAT) to 27 per cent and introduced special taxes in the financial sector, in telecommunications and for energy suppliers (Győrffy 2015). In Romania, the rise in tax revenues is most likely the outcome of the decline in real GDP without significant changes in the tax regime. Romania implemented a 16 per cent flat-rate income tax during the mid-2000s, scrapping a five-tier progressive income tax system (Appel and Orenstein 2013), but without the system of family deductions avail-able in Hungary. The European Commission conditioned the third instalment of loans in summer 2010 on a number of tax-related reforms, which laid the ground for new leg-islation in both education3 and health care. In addition, the Boc government raised VAT from 19 per cent to 24 per cent in 2010 as part of the standby agreement with the IMF despite great controversy at home over growth prospects (IMF 2011; Avram et al. 2013; Oprea and Bilan 2015). Simulations by Avram et al. (2013) suggest that this VAT increase and changes in direct taxes, cash benefits and public sector pay together amounted to a decline of 5 per cent in disposable household income for households in the third to ninth income deciles, thereby, affecting the majority of Romanian households.

What is perhaps most interesting during this period is that, certainly in the case of Romania, more effective taxation has coexisted with consistently high levels of informal-ity, with no evidence to suggest that higher tax revenues might have resulted from the con-traction of the informal economy (see Table 12.4). A persistently large informal economy seems to lend support to the argument that informal transactions are embedded in post-socialist economies, constituting a substantive part of economic relations and exchanges (see Morris and Polese 2014). This extends to welfare provision, where a ‘mixed economy’ is very characteristic of inadequate, patchy and differentially accessible welfare regimes: citizen-to-citizen provision arising in the context of underdeveloped public services, unaf-fordable and few market-based services and, on the supply side, easily accessible informal providers – particularly in care work – who complement regular incomes in formal provi-sion, with off-the-books informal provision (Kovács 2014).

As noted previously, efforts to reign in government expenditures and reduce the deficit – a key conditionality of the standby agreements in both Hungary and Romania – were achieved in both countries through a mix of cuts and adjustments in public sector employ-ment. Both Hungary and Romania cut thirteenth salaries4 (Mediafax 2010b; IMF 2011; Molnár 2011), Hungary put in place wage freezes initially, only to resort to public sector wage cuts, similarly to Romania in 2010, as the recession deepened (IMF 2011; Köllő

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2011; Avram et al. 2013; Hermann 2014). Romania also agreed on decreases in public sector employment by committing to only replace every seventh departing civil servant, which resulted in 88 000 job cuts by the third trimester of 2011 (IMF 2011; Hermann 2014). The new pay scale for public sector workers, introduced in 2011, included further defunding mechanisms in public sector employment, notably caps on bonuses. Köllő (2011, pp. 61–3) commented that during the early crisis period, the socialist-led cabinets in Hungary aimed to first and foremost maximize employment, especially in the public sector, achieved through job retention subsidies in state-owned enterprises (spending increasing by 1700 per cent in 2009 compared with 2008), enhancing job demand through subsidies in the private sector (Elek and Scharle 2011) and the doubling of public works expenditure in 2009. As already outlined, public sector wage cuts ensued only in summer 2010 in Romania after two successive increases in 2008, when the crisis was not yet felt, but predictable. Under pressure from the IMF, the Boc government adopted an austerity package5 cutting 25 per cent of public sector wage earners’ incomes, including salaries and allowances, and 15 per cent nominal cuts to a host of cash benefits (see below).

Pensions systems also underwent a succession of austerity measures. The 2009 auster-ity package, whose aim was to restrain welfare spending in Hungary, led to the cutting of the thirteenth pension (Tóth and Medgyesi 2011). Although Romania introduced the minimum ‘social’ pension in 2008–09, raising monthly incomes for around 1.8 million retirees (of a total of 5.7 million) (Mediafax 2010a), the 2010 austerity legislation intro-duced a cut to this policy instrument and pension freezes (IMF 2011; Avram et al. 2013). Moreover, the longer-term retrenchment measures that Hungary put in place – notably the rise in retirement age and the extension of contribution periods – were also pursued by the Romanian government (Hermann 2014). In addition, the austerity package issued in summer 2010 by the Boc government also led to the discontinuation of a host of one-off retirement benefits and benefits in kind. Furthermore, while in Hungary the second pillar essentially ceased to exist owing to the Orbán cabinet’s move to nationalize, Romania refrained from further expanding contributions to the second pillar, retaining the initial 2 per cent to this day despite plans to increase these to 3 per cent in 2012 (IMF 2011). That is, both Hungary and Romania put in place pension system reforms amounting to classic retrenchment: direct cuts and policy drift (Hacker, 2004; Mahoney and Thelen 2010), especially the impact of pension freezes in tandem with currency devaluation and high inflation, and defunding through shifting certain funding sources – notably that of the minimum social pension in Romania – to less sustainable ones: annual state budget legislation. Avram et al. (2013, pp. 10–14) found that pension freezes and cuts had the most sizeable negative impact on simulated household incomes caused by fiscal consolidation policies in Romania, far larger than losses due to public sector wage cuts and means-tested benefit freezes or cuts. Moreover, unlike anywhere in the post-socialist welfare states in the EU, these cuts were U-shaped, affecting those in the second to ninth income deciles especially almost in equal measure, but not the extremes. Finally, Avram et al. (2013, pp. 26–7) note that the indexation rules that formed part and parcel of benefit level adjustments between 2009 and 2012 reduced the overall progressivity of the social welfare system instead of enhancing it. In short, Hungary and Romania resorted to social policy changes that are textbook illustrations of Pierson’s (1994) strategies of division and compensation geared towards minimizing the risks of mobilization against cuts in times of welfare state retrenchment, but what is noteworthy is that, overall, the resulting

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welfare state retrenchment affects the neediest most and the middle and higher income groups comparatively less.

LABOUR MARKET CONDITIONS, POLICY REFORMS AND SOCIAL OUTCOMES

In both Hungary and Romania, unemployment peaked during the 2009–11 period. In Hungary the share of unemployed men doubled and for women the unemployment rate increased by 215 per cent for the 25–74 age group between 2003 and 2011. In Hungary, these trends also held for the 15–25 age group, although the most affected by the crisis and its immediate aftermath were new labour market entrants (Bálint et al. 2011). The crisis and early years of the recession affected highly skilled workers most, initially in the western and north-western regions of the country, more closely related to the Austrian and other Western economies (Bálint et al. 2011). In Romania, in part because its youth unemployment figures were higher during the ‘good’ years, registered lower increases, but had youth unemployment levels similar to those in Hungary in 2013 (see also, Hermann 2014). In addition, although unemployment rates in the early 2000s were higher as com-pared to Hungary, these remained flat throughout the entire period, with a mild dip in 2007, followed by a return to 2003 levels by 2013. Interestingly, female unemployment levels remained consistently lower than those for men in Romania, whereas in Hungary these levels kept oscillating, with women more likely to be unemployed than men during the lowest growth years (2005–07 and 2011).

Hungary has also had higher long-term unemployment levels throughout 2003–13, although in most years lower than the EU-28 average. By contrast, Romanian figures show a very unusual trend: consistently very low levels of long-term unemployment and a consistent decrease between 2003 and 2010 and a return to 2007 levels by 2013. However, the IMF (2011) commented that these figures are the result not of job creation, but of labour market contraction, percentage decreases showing not a decline in number of long-term unemployed persons, but instead a decline relative to a faster declining active population. Indeed, the labour force shrank in both Hungary and Romania as a direct result of the crisis. In Hungary, unemployment increases during the 2008–10 period, as a result of mass layoffs, have been seen as a harbinger not of firm-level adjustments, but bankruptcy, suggesting that the decline in unemployment figures in later years is also explained by a shrinking labour force, not job creation and increased activity rates (Bálint et al. 2011; Köllő 2011).

Costello et al. (2011, pp. 85–6) outline the types of interventions that the European Commission supported as early as 2009: (1) greater labour flexibility; (2) the targeting of income support towards those most affected; (3) re-training; (4) tackling household debt and maintaining access to financial services; and (5) reducing non-wage costs for low-skilled workers especially. Several policy instruments were meant to target the most vulnerable in ways that would enable employment, even if temporary and part-time, and smooth out consumption. Hungary engaged in a host of different policy strategies, notably encouraging flexible working time, but without changing labour legislation in line with principles of flexicurity (Costello et al. 2011; Hermann 2014). Part-time employment increased more among women, especially after 2010, in great part as a result of changes

M4318-KENNETT_9781783476459_t.indd 206 20/06/2017 15:24

207

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8.9

8.9

n.a.

n.a.

Rom

ania

6.7

5.5

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M4318-KENNETT_9781783476459_t.indd 207 20/06/2017 15:24


in labour legislation mandating that women returning from paid parental leave early should be employed only part-time until their child reached age 3 (Bálint et al. 2011). The Hungarian government also mitigated the impact of the crisis on households, but without supporting household purchasing power (and, thus, assisting in smoothing out consumption). For instance, the government initiated a moratorium on evictions and a crisis management fund was created to assist families with arrears on mortgages (Elek and Scharle 2011). It also introduced a two-pronged anti-energy poverty scheme consisting of a means-tested cash benefit for energy bills and financial allocations for the insulation of homes (Costello et al. 2011). At the same time, however, the outgoing Bajnai government also tightened unemployment benefit access by making families instead of individuals eligible for the benefit starting in 2010 (Bálint et al. 2011). Finally, Hungary improved job placement and invested in re-training, but without enforcing activation, and supported employment by cutting labour costs through reduced employer’s social security contribu-tions as early as 2009 (Costello et al. 2011; Elek and Scharle 2011).

Romania adopted a different mix of policies. Similar to Hungary, it improved job place-ment and spent more on re-training, but failed to invest in education and lifelong learning or to reinforce activation; and supported employment by cutting labour costs. Unlike Hungary, however, it maintained or reinforced social protection and supported household purchasing power, but started supporting flexible working time later (Hermann 2014). Unlike Hungary, it did not try to mitigate the impact of the crisis on individuals, not least because the cash transfer schemes adopted by Hungary – and other means-tested ben-efits, for example, for funerals – had already been in place for several years (Costello et al. 2011). Hermann (2014, pp. 116–17) also noted that in addition to weakened job security, for example, through the expansion of the maximum duration of fixed-term contracts, the extension of probation periods and the substantive reduction in the time frame when workers have the right to be re-hired, in Romania, unfair dismissals have become more dif-ficult to challenge by workers and less costly for employees, for example, in Hungary. The author comments that of all post-socialist EU economies, only Hungary, Romania and Estonia weakened employment protection especially for vulnerable employees, suggesting again that labour market adaptation in the context of the recession has targeted the most vulnerable rather than the most privileged in the two countries analyzed.

In the absence of data collection efforts by public bodies, it is hard to estimate how the crisis and recession years might have affected the forms, incidence and importance of undeclared or informal labour market activity in Hungary and Romania. In an insightful discussion, Semjén and Tóth (2011) review survey-based undeclared labour market activ-ity (as cash-in-hand top-ups to formally employed employees and as invoicing for services instead of being paid a full wage) for Hungary in 2008, prior to the crisis, and articulate a number of scenarios that would increase the likelihood of informality in the aftermath of the crisis, very much applicable to the Romanian context considering the prevalence of similar forms of informality in employment (Renooy et al. 2004; Parlevliet and Xenogiani 2008). An important mechanism is firms’ adjustment strategies in the context of the crisis, for example, shrinking markets, indebtedness and related cash flow problems, and capital exit. Even if companies did not rely on either strategy to reduce non-wage labour costs, the crisis might have triggered reliance on one or both of the aforementioned strategies for at least a share of the workforce. In firms where such strategies might have been commonplace, their incidence and magnitude likely increased as a result of the eco-

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nomic downturn. Another mechanism is layoffs and re-hiring in an undeclared form or subcontracting the same services. If undeclared employment is seen as a less precarious alternative than being unemployed (and this is probably the case for those most likely to be involved in informal employment, for example, younger, less educated men), then undeclared and under-declared employment is likely to have increased in the aftermath of the crisis, when unemployment increased in both Hungary and Romania, in some periods significantly over short periods.

THE MIDDLE-CLASS BIAS IN FAMILY POLICY ADAPTATION

Historically, Hungarian family policy has been among the most comprehensive not just across socialist, but European welfare states more generally (Ferge 2001; Haney 2003; Szelewa and Polakowski 2008; Inglot et al. 2012; Saxonberg 2014). By comparison, Romanian family policy has been much less developed, critiqued to have been pro-natalist rather than childrearing-orientated (Verdery 1996; Gal and Kligman 2000) certainly until the mid-2000s, when a new paid parental leave legislation turned this employment-related instrument not only into a generous time plus cash benefit for labour market insider parents, but also one of the largest programmes of its kind in Europe (Letablier et al. 2009).

Policy developments in Hungary during the 2000s and since the dominance of the Fidesz-led right-wing coalition in Hungary have been geared towards family policy expan-sion, although with a stronger bias towards working families, and stronger support for mothers’ early return to paid work. The latter arguably signifies a paradigmatic change in Hungarian family policy, which has historically supported a three-year care leave for mothers and also encouraged stay-at-home motherhood for large families through a host of benefits in cash and in kind (see Saxonberg 2014). Unlike the Romanian paid parental leave scheme, which has remained exclusively employment related since its creation in January 1990, the Hungarian scheme has included a combination of a universal flat-rate benefit (GYES) and an employment- and earnings-related benefit (GYED) for over three decades now, covering – as mentioned – a maximum of three years of paid leave. Inglot et al. (2012, p. 34) explain that although the duration of the paid leaves became targets of cuts when the Gyurcsány and Bajnai cabinets were faced with the budgetary squeeze caused by the crisis and with pressures for austerity measures on which the international loans were conditioned, strong lobby prevented a reduction in the duration of the GYED and GYES. Instead, the regular indexation of universal and means-tested benefits was dropped, a classic strategy of policy drift leading to defunding, and eligibility for the employment-related and more generous GYED were tightened in 2010 (Bálint et al. 2011; Ingot et al. 2012). Considering the qualification-based differences in activity rates among women in Hungary, exacerbated by the recession, the effect of this combined paid parental leave policy has been the consolidation of a dual system: a low-paying system for low-income mothers with low earnings or weak or no labour market attachment and a more generous system for higher-income mothers with higher earnings and strong labour market attachment.

While in Hungary this dual system is a relatively new phenomenon, the Romanian paid parental leave scheme has always been implicitly exclusionary in the absence of a universal

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cash allowance for parents of young children. It turned explicitly exclusionary by the mid-1990s, when inactivity levels among fertile age women started increasing (Kovács 2015c), and when paid parental leave was extended from ten months (until the child’s first birthday) to 22 (his/her second birthday), in 1997. In 2005, the Tăriceanu cabinet legislated the paid parental leave anew, scrapping the income-related cash benefit (capped by the previous social democratic cabinet) and introducing a flat-rate cash benefit which approximated, at the time, the average net wage. This made paid leave a rather attrac-tive labour market exit option for women and single-earner couples planning to have children at the time. In 2007, the cash benefit was reduced from 800 to 600 RON, but at the same time a 200 RON universal child allowance was introduced for children under two, so that parents (in the vast majority of cases mothers) on leave continued to receive around 800 RON a month during the first two years post-partum. While this family policy instrument has received great media coverage and public praise and can rightly be described as the pillar of the Romanian family policy system given the virtual absence of tax deductions, the meagreness of universal (and means-tested) cash benefits and the absence of an encompassing public nursey system, it is one of the most exclusionary in Europe. As already foregrounded, continuous full-time labour market participation prior to childbirth makes this cash plus time benefit accessible to around half of Romanian parents, coverage rates oscillating between 44 and 50.7 per cent between 2007 and 2013 (Kovács 2015a). What is more, take-up figures show that the poorer the Nomenclature of Territorial Units for Statistics (NUTS) 2 region, the higher the share of fathers on leave, suggesting that this policy instrument functions as a primary household income source in areas where single-earner young couples faced with insecure and low wage local labour markets are more common (Kovács 2015a).

In 2008 the outgoing Tăriceanu cabinet – as part of its end-of-term cash benefit increases to be bequeathed to a cabinet whose space of manoeuvre and popularity it meant to curtail even before coming into office – passed ministerial decision no. 1682/2008, introducing the possibility of opting for either the unindexed 600 RON flat-rate cash benefit or 85 per cent of gross earnings, capped at the very generous 4000 RON (around €950) level. This option to choose between an earnings-related rather generous cash benefit and a fast-eroding flat-rate one clearly favoured high and very high income couples, at comparatively high expense for the programme budget. Eligibility was also extended to include university and master’s students, more of a token, but clearly middle-class orientated move. In summer 2010, the Boc cabinet’s austerity package introduced a nominal 15 per cent cut in the value of the cash benefit also, leading to mothers’ protests. That summer a host of universal one-off birth-related cash transfers were also cut, includ-ing the birth grant and the so-called trousseau money. However, the period of cuts did not last long. In January 2011, the cabinet passed new legislation stipulating parental choice between (1) a shorter leave (up to the child’s first birthday), with a cash benefit of either 600 RON flat-rate or 75 per cent of net earnings, capped at 3400 RON; or (2) a longer leave (up to the child’s second birthday), with a cash benefit of either 600 RON flat-rate or 75 per cent of net earnings, but capped at 1200 RON. In addition, parents who returned from leave earlier than the maximum duration, would be paid a 500 RON ‘re-insertion’ bonus, receivable until the child’s second birthday irrespective of the leave option chosen. Since, the flat-rate cash benefit has stayed unchanged, the famous 600 RON now equalling the net minimum wage and one-third of the net average wage in 2015, while the earnings-

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related one has been amended in 2012 and is now 85 per cent of net earnings. Changes planned for 2016, meant to increase the number of births, amount to retaining perennial exclusionary eligibility criteria, but caps on the income-related cash benefit are to be eliminated and the minimum value of the cash benefit will be increased to 85 per cent of the pre-tax minimum wage as of July 2016.

To summarize this complexity of changes, the Romanian paid parental leave instru-ment is an excellent example of a policy explicitly geared towards the middle classes, broadly understood as secure labour market insiders. However, even this is an understate-ment of the regressive nature of this policy. Those who are clearly advantaged by the measure are highly skilled, above average income couples with strong job security and a host of choices to outsource early years childcare to familial, private or informally hired providers. By comparison, their less educated peers, earning low wages in a labour market that has become more insecure owing to contraction, flexibilization and greater economic uncertainty (see Hermann 2014), have access to comparatively meagre cash benefits, often find themselves out of a job at the end of their leave periods and have much more limited childcare options (see Kovács 2015b). Moreover, the policy drift characterizing the minimum value of the cash transfer suggests that the defunding caused by avoiding its indexation for almost ten years happens at the expense of those at the bottom of the income distribution, that is, less skilled parents in more insecure jobs, for whom a two-year paid leave is a more reliable source of income during their child’s early years. What is also evident is that despite austerity packages affecting other policy areas, this deeply exclusionary family policy instrument has suffered only slight cuts by comparison. The 15 per cent net cut in 2010 affected, in reality, only those parents who received benefits higher than the minimum 600 RON, that is, under 10 per cent of all recipients (Ministry of Labour 2012). Considering that the poorer half of Romanian couples having children since 2006 are ineligible, family benefits have been least affected by the austerity measures of the post-2008 cabinets, therefore with significant negative implications for the most impoverished Romanian families as their better-off peers were able to maintain standards of living even while jobs were disappearing and means-tested programmes were being cut or remained unchanged.

In Hungary, tax deductions for employers, tax breaks and social contribution rebates have been a common way of redistributing towards families with young children. Family tax credits have long been available in both Hungary and Romania, but those available in Romania amount to insignificant savings for families with young children compared with those in Hungary. The Hungarian system of family tax deductions was maintained even after the introduction of the flat-rate tax system during the previous Orbán cabinet (Inglot et al. 2012). In Romania, by comparison, the tax system has consistently been avoided as a mechanism to redistribute, the Romanian welfare system relying much more readily on direct transfers, whether employment-related and, thus, regressive, or means-tested and, thus, progressive, although both Hungarian and Romanian family policy should be seen as transfer-orientated rather than services-oriented, especially for families with children under three (Inglot et al. 2012). These differences are also evident in the tax rates by type of household, which show that in Hungary the redistributive bias leans towards households with children, whereas in Romania – with a much more compressed tax rate system – tax burdens are somewhat smaller for single-earner couples with children.

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Tax rates in both Hungary and Romania exceed the EU-28 for the 2003–14 time frame, although in Romania tax rates much better approximate the EU-28 average for all catego-ries of households than do those of Hungary, with the sole exception of the two-income, two-average wage childless couple, who are treated much more favourably. Indeed, Romanian average-income childless couples pay just a little more in income tax and social security contributions than their two-child peers on slightly lower incomes, revealing the regressive impact of flat-rate taxation and the virtual absence of tax deductions for dependents in the Romanian context. In contrast, Hungary’s tax rates are significantly higher for the childless low-income single earner than the EU-28 average or the Romanian tax rate, this earner group paying taxes as high as those accruing to average-income child-less single and average-income childless couples, suggesting a similar regressive impact of flat-rate taxation as in Romania.

With means-tested and universal child- and care-related benefits being comparatively low in value in both Hungary and Romania compared to the income-related cash transfers available, it is fair to say that, overall, family policy provisions tend to favour middle-class parents, much more so in Romania than Hungary. Indeed, the effects of taxes and transfers on child poverty levels are less substantial in Romania than in Hungary by a significant margin (see Adamson 2012). Rising child poverty rates in both Hungary and Romania, exacerbated by the recession, are one unfortunate outcome of what is, essen-tially, a welfare state for middle-class parents in Romania and a welfare state more for middle class parents than their less-educated, lower-income peers in Hungary.

Table 12.6 Tax rates for different types of households in Hungary and Romania, 2003

2003 2005 2007 2009 2010 2011 2013 2014

Tax rate for single person without children, at 50% of average wageEU-28 n.a. 21.79 21.36 21.15 21.85 22.13 21.10 21.04Hungary 18.15 17.96 22.74 23.82 23.77 26.75 34.50 34.50Romania 20.80 21.90 24.30 25.33 25.66 26.06 22.78 23.17Tax rate for one-income married couple, two children, at 100% of average wageEU-28 n.a. 17.79 18.08 17.12 17.91 18.39 18.37 18.66Hungary 17.47 19.55 24.67 24.64 18.13 13.64 15.31 15.92Romania 12.10 12.20 17.90 18.85 19.71 23.97 17.75 18.60Tax rate for two-income married couple, two children, at 100% and 67% of average wageEU-28 n.a. 23.74 23.27 22.88 23.43 23.66 23.50 23.33Hungary 19.96 20.62 25.63 26.26 21.86 19.99 22.99 23.37Romania 18.20 18.00 21.70 24.06 24.56 25.29 22.07 22.57Tax rate for two-income married couple, no children, at 100% of average wage eachEU-28 n.a. 30.04 29.83 29.38 29.65 29.86 29.77 29.42Hungary 32.98 33.70 38.81 37.75 31.18 34.95 34.50 34.50Romania 27.40 26.10 27.80 28.41 28.69 28.95 25.68 25.88

Source: Eurostat, tax rates for different types of households [earn_nt_taxrate] (accessed 30 March 2016).

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CONCLUSIONS

The argument we have put forward in this chapter is that post-socialist welfare states within the European Union should not be categorized as a more or less coherent regime type. Nonetheless, we have also shown that social policy change and welfare state adaptation – especially in response to the 2008-2009 crisis and the ensuing recession in Hungary and Romania, as contrastive examples – is best conceptualized as retrenchment, leading to residualizing welfare provision servicing not the least fortunate and those in greatest need of redistribution, but instead residualizing welfare provision at the expense of the most disadvantaged and the maintenance of a relatively generous welfare system for the middle classes, broadly understood as more or less secure labour market insiders. Thirdly, we have argued that informality, as an inherent component of a different path to modernity, is not only a permanent feature of economic life, but of social welfare provi-sion also across a number of welfare sectors, including health care, childcare and other social services. Sdding another layer of regressive redistribution to dual welfare states serving best the more fortunate and well off.

We have tried to paint a detailed picture for two different types of post-socialist welfare states, Hungary – described as a post-communist European welfare regime type – and Romania – representing the developing welfare state type (Fenger 2007), to show how defunding strategies, outright cuts and, in rare cases, middle-class orientated social policy expansions have negatively affected the neediest and more exposed social strata in Hungarian and Romanian society or benefited especially the formally employed, well-educated, higher-income middle classes in direct and indirect ways. As we have argued in the introduction, we contend that the universalist ethos of socialist welfare states has been abandoned across CEE welfare states. Although undoubtedly unique hybrids, many of the post-socialist social welfare systems have become unique hybrids of encompassing, rela-tively generous welfare states for the middle classes, on the one hand, and formal insecurity systems for the most disadvantaged, on the other. A wide range of welfare transactions and provisions fall within at least a grey area of semi-legal informality – paralleling the situation in these economies more generally. While the better off have the economic and network resources to access the ‘best of both worlds’, formalized welfare benefits such as maternity leave and a private, informally paid nanny, for example, the poorer are at the mercy of resid-ual, meagre or outright absent provisions through the formal social welfare system and lack means – both in terms of economic and social capital – to utilize social welfare protection other than familial exchanges, which come much closer to a mutual aid model reminiscent of less developed societies. That is, the juxtaposition of this dual social protection system with informal practices and exchanges across welfare domains exacerbates further inequali-ties of access, inequalities in the level of protection against risks and inequalities in the range of risks against which individuals enjoy social protection through public provision.

NOTES

1. Letablier et al. (2009) note that by European standards, the Romanian paid parental leave programme is, as a percentage of GDP, one of the most generous ones, despite the fact that eligibility criteria exclude roughly half of all families with children under two from the programme (see Kovács 2015a).

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2. As noted, the Tăriceanu government introduced the minimum social pension in 2008, but the new Boc cabinet passed emergency ordinance no. 6/2009 in February 2009, restating the programme and making the level of the minimum pension subject to annual review by inclusion in the laws of the state budget.

3. Law no. 1/2001 on national education.4. Civil servants can enjoy a host of preferential in-kind benefits, such as bonus regimes restricted to civil

service. In Romania, this has included among others additional salaries, such as thirteenth or fourteenth salaries, paid out during summer or winter months.

5. Law no. 118/2010.

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