Restrictions on Social Security cost-of-living increases, blocked until this year by fierce opposition from organizations of the aged, were imposed years ago by many other industrial nations to hold down costs of programs, according to a study published in the U.S. government's Social Security Bulletin.
The study says that, in recent years, West Germany, Canada, Finland, the United Kingdom and Sweden all faced difficulties with social security financing for the same reasons as did the United States: inflation, recession and, in some cases, overall budget deficits.
Those countries all responded by restricting automatic cost-of-living adjustments (COLAs). In some cases, the restrictions were similar to the six-month postponement of the 1983 COLA, which constituted the major benefit cut in the Social Security rescue bill signed by President Reagan earlier this year. In other cases, the restrictions were more severe.
Cutting COLA was not the only way other developed nations sought to contain social security costs. The COLA study and a second article on other reductions suggest that the United States is not unique in its problems with Social Security and Medicare. The articles outline how other industrialized countries, after expanding their social security systems in the early 1970s, ceased doing so or began cutting back to meet the economic hard times that began after the 1973 oil embargo.
West Germany, for example, slapped a COLA percentage cap--zero in 1978, 4.5 percent in 1979, 4 percent annually in 1980 and 1981--on the annual benefit increase. By the end of that period, there was a net loss of 10 percent compared with its previous cost-of-living formula, which had been based on wage increases.
Canada also used caps to keep pension boosts lower than the national rate of price increases. Sweden in 1981-82 dropped energy prices from the consumer price index used to calculate pension boosts, thus holding down increases. It also limited pension increases to one a year, instead of paying them whenever the index rose 3 percent.
Finland shifted from twice-a-year increases to one a year. The United Kingdom also has imposed restrictions. Although Denmark was not one of the nations studied in the bulletin article, it recently suspended COLAs for two years, one author said.
The second bulletin article details other benefit cuts or social security tax increases imposed by western European countries and nations such as Australia, Canada, Israel and Japan.
Many of these countries have raised their contribution ceilings beyond the amount needed to keep pace with inflation or wage increases, forcing employers and employes to pay more than previously. Belgium removed the ceiling for salaried workers, who now contribute or pay a payroll tax based on total earnings, not just a portion.
In addition, the bulletin says, "most countries (including Austria, Belgium, Finland, France, Italy, Japan, the Netherlands, Norway, the United Kingdom and the United States) have recently increased the payroll tax rate contribution, usually for both employers and workers. In Italy, only the employers' contribution was raised."
Since 1980, Belgium and France have taxed old-age benefits, West Germany is requiring contributions toward health care, and several countries have imposed or increased patient copayments for medical and hospital services or are planning to do so, or increased waiting periods for government-paid temporary sickness benefits.
"Social Security developments in the industrialized countries in recent years are in marked contrast to those of a decade ago," the bulletin reports. "While countries were expanding and liberalizing their programs 10 years ago, today they are retrenching." Cited as reasons were sustained inflation, high unemployment, limited economic growth and aging of populations, leaving fewer workers to support more retirees. The bulletin predicted for the future "increased belt-tightening, particularly in the areas of adjustment for inflation and in health care."