STU 03-02 : Special Topic : Belgian minimum allowances and the relative method of measuring poverty : a comparison [ Short Term Update 03-02 - 17/10/2002]

The world economy recovers slowly after a net decline in 2001. Both ‘soft’ (e.g. confidence indicators) and ‘hard’ indicators (e.g. industrial production and world trade) reached a turning point by the end of last year. In a first wave, the magnitude of the upswing, mainly in the US, was a surprise. More recently, however, several confidence indicators started to decline again.

In this context, Belgian real GDP should grow by only 0.7 % in 2002, somewhat below last year’s figure of 1 %. Two consecutive years of weak economic growth should lead to a fall in domestic employment (-0.2 % in 2002), the first decline since 1994.

The global recovery scenario for 2003 remains in place, despite the current hitch in the international business climate. In Belgium, the cyclical recovery is already clearly visible in exports and most recent indicators are pointing to a positive reversal in private consumption in the course of this year. The consequences of last year’s downturn for investor confidence and employment however have not yet been overcome, but this should change as the correction of overinvestment seems to be gradually coming to an end and entrepreneurs should begin to increase their staff by the end of this year, reacting with a certain time lag to the recovery of economic activity. As a result, Belgian real GDP should grow by 2.6 % next year. The underlying scenario of a sustained recovery in the world economy during the coming quarters is however surrounded by a number of risks, as is reflected in the current volatility of stock markets.

This Special Topic explains the so-called legal and relative methods of measuring poverty in Belgium and compares the poverty thresholds based on these methods. The methodological and conceptual problems associated with this comparison are then discussed. Finally, a brief overview is given of some important developments at the Belgian, European and UN levels concerning the fight against poverty and social exclusion.

One method often used to measure poverty is to focus on a person’s income. Below a certain income threshold it becomes difficult or even impossible to keep up with prevailing living standards. A person with an income below this threshold is thus considered poor. In Belgium, for instance, two methods of determining this income threshold are frequently used.

Legal method

The so-called legal method refers to the minimum income guaranteed by the Belgian minimum allowance schemes: the Subsistence Income (SI) and the Minimum Income for the Elderly (MIE). The term ‘legal’ is used because the amount, the specific eligibility criteria and the procedures used in these schemes are based on legal provisions. These means-tested schemes are price-indexed and the amount varies according to the household type of the beneficiary (referred to as the category). They can be adjusted upwards in accordance with the evolution of the standard of living. In 2001, 91,715 MIEs and 70,364 SIs were granted respectively. Table 1 indicates the percentage of SI allowances according to their category.

Relative method

The relative method of measuring poverty involves generating a threshold from the income distribution pattern. It is relative because the income distribution is specific to each country and time-period, so the threshold follows the evolution of the living standard. The relative poverty threshold (RPT) used by Eurostat for the European Union is equal to 60% of the median equivalised income in each country. It is calculated using the self-reported income of the European Community Household Panel (ECHP). According to this method 15.5% of the Belgian population was living with a household income below this threshold in 1997. This percentage varies according to the person's most frequent activity status, as table 2 indicates. If an RPT of 50 and 70% of the median equivalised income is used, the percentages of the population living on incomes below these thresholds are 10.1 and 24.2% respectively.

STU 3-02 was finalised on September 9th 2002.