BUIG budget distribution model

1. Determining macro budgets.

The macro budgets for the various schemes (Participation Act, IOAW, IOAZW and Bbz) are estimated separately each year by the Ministry of Social Affairs and Employment (hereafter: SZW) and then added up into a single integral macro budget. In total, this involves approximately EUR 6 billion. The integral macro budget is divided among the municipalities.

The provisional decisions are announced at the end of September/beginning of October each year prior to the year of payment. The provisional budget is adjusted in the course of the year in the further provisional and final decisions, based on current information on the effects of policy, the economy and prices.

2. The funding system.

The design of the funding system is intended to provide a financial incentive for municipalities to keep as many people as possible off welfare and into work.

Surpluses on the BOP budgets are freely disposable and deficits are in principle to be absorbed by the municipalities themselves. Municipalities with a large deficit can, under certain conditions, make use of a safety net regulation.

3. Share of macro budget by municipality.

Municipalities with up to 15,000 inhabitants receive the Buig funds on the basis of historical benefit costs. Their share in the macro budget in the benefit year is equal to their share in the macro benefit costs two years previously.

Municipalities with more than 40,000 inhabitants receive the BSE funds entirely on the basis of the objective distribution. The Buig budgets of municipalities with 15,000 to 40,000 inhabitants are partly determined historically and partly determined objectively. The ratio is in proportion to the number of inhabitants. For a municipality with 27,500 inhabitants the ratio is 50-50.

4. The objective probability model.

For the allocation of the Buig budgets, the Ministry of Social Affairs and Employment uses an objective distribution model. As of 2015, this is based on the so-called multi-level model developed by the Social and Cultural Planning Office (SCP), SEO and Atlas for Municipalities.

This model calculates the objective probability that a household is dependent on welfare payments. That probability depends on characteristics of (i) the household in question (such as age, composition, health), (ii) the neighborhood where this household lives (nuisance and insecurity) and (iii) the municipality (labor market opportunities). The objective probability model is calibrated based on the national average of welfare dependence.

The idea behind the objective probability model is that a municipality, through the design and implementation of its own policies, can ensure that the actual probabilities of welfare dependence deviate positively or negatively from the national average.

5. Adjustments to the objective probability model.

Since its introduction in 2015, several adjustments have been made to the objective distribution model. For example, for the 2017 distribution model, the transition was made from sample data to an integrated dataset with data from all Dutch households. At the time, the allocation of resources was also significantly refined by the addition of new distribution characteristics and the use of more refined standard amounts.

In the budget distribution for 2019, the distribution model has been further adjusted. In line with the advice of the ROB, SZW has examined the extent to which there are objective factors that explain differences in the average amount paid per municipality. Differences could, for example, be due to municipal differences in the supply of part-time work, or the likelihood of receiving another benefit (such as general Survivors Act, pension, partial WW, Sickness Act).

This research led to the addition of a price component to the model. The applicable standard rates are corrected for objective differences in the average benefit paid. This should result in the model being more in line with the municipal tasks.

Addition of price component to the objective distribution model

The objective model is based on a probability model in which the probability of receiving welfare payments is estimated for each individual household. The estimated number of households on welfare is multiplied by the applicable normative rates to arrive at the objective budget.

Since its introduction in 2015, the probability model has been improved annually, for example by adding new household characteristics, using an integral dataset with all Dutch households (instead of sample data), and using more refined normative benefit amounts. The budget distribution for 2019 is also based on an adjusted distribution model. In line with the advice of the ROB, SZW investigated the extent to which there are objective factors that explain differences in the average amount paid per municipality. Differences could, for example, be due to municipal differences in the supply of part-time work, or the likelihood of receiving another benefit (such as general Survivors Act, pension, partial WW, sickness benefit).

This research led to the addition of a price component to the model. The applicable standard rates are corrected for objective differences in the average benefit paid. This should result in the model being more in line with the municipal tasks.

Influx of status holders in the budget year included in the macro budget

Some of the status holders who arrive in the Netherlands in 2018 will receive welfare benefits in 2018. This was not taken into account in the preliminary macro budget 2018. SZW has corrected this in the final macro budget 2018 by an addition of €118 million.

Also, the provisional macro budget 2019 now takes into account the welfare dependency in 2019 of status holders who are expected to arrive in the Netherlands in 2019. Previously, the costs of welfare dependency (in the budget year) of status holders arriving in the budget year were not included in the macro budget.

Final catch-all regulation is in place

In 2017 and 2018, there was a transitional arrangement in the safety net payment. As of 2019, the final safety net scheme will be introduced.

This means that starting in 2019, there will be a "deductible" of 7.5%. The deficit between 7.5% and 12.5% will be reimbursed at half. The deficit above 12.5% will be fully reimbursed. The maximum deficit is then 10%. Compared to 2018, the deductible threshold has increased from 5% to 7.5%. This means that the maximum deficit for own account has increased from 8.75% to 10%.