Laws and Political Intentions
The proposed indexation of family allowance is likely to become a case for the European Court of Justice. By Richard Gansterer
The indexation of family allowance—the adjustment of benefits to the cost of living in the children’s place of residence—has now been rebuked by the EU Commission, and infringement proceedings under Art. 258 TFEU have been initiated. The Commission has given the Republic of Austria a two-month deadline to repeal the indexation. Should Austria fail to comply, the Commission will refer the matter to the European Court of Justice (ECJ) to bring about a final decision.
Article 4 Coordination Regulation, “Equal Treatment”: “Unless otherwise provided for by this Regulation, persons to whom this Regulation applies shall enjoy the same benefits and be subject to the same obligations under the legislation of any Member State as the nationals thereof.”
In her statement, Social Affairs Commissioner Thyssen criticised the adjustment of family allowance to national price levels as “unfair” and “unlawful”. She argued that indexation hits those EU citizens who contribute to the social system and the economy just as much as any other Austrian.
The Commissioner justifies the rejection of indexation not only on the basis of the general prohibition of discrimination under Art. 18 TFEU and the free movement of workers under Art. 45 et seq. TFEU, but also on the implementing Regulation on the coordination of social security systems. Article 7 of this Regulation explicitly states that any reduction or denial of family benefits based on the place of residence is prohibited.
Article 7 Coordination Regulation 883/2004, “Waiving of residence clauses”: “Unless otherwise provided for by this Regulation, cash benefits payable under the legislation of one or more Member States or under this Regulation shall not be subject to any reduction, amendment, suspension, withdrawal or confiscation on account of the fact that the beneficiary or the members of his/her family reside in a Member State other than that in which the institution responsible for providing them is situated.”
Cost of living has no relevance
For Thyssen, the cost of living is of no relevance when the payment is made as a lump sum rather than as a reimbursement of actual expenses. Nor is it relevant whether the employee co-finances the family benefits through their contributions or whether they are paid by the employer. This is particularly pertinent because in Austria, employers pay a lump sum to the Family Burden Equalisation Fund, and this amount is not linked to the place of residence, actual costs, or similar criteria.
Preamble of Coordination Regulation 883/2004: “(16) Within the Community, there is in principle no justification for making social security rights dependent on the place of residence of the person concerned; however, in specific cases, in particular as regards special benefits linked to the economic and social context of the person concerned, the place of residence could be taken into account.”
Tax-like nature of employer contributions
Prof. Mazal of the University of Vienna, the expert appointed by the Kern government to assess the indexation of family allowance, sees an objectively justified unequal treatment of the different sets of facts. He points to the tax-like nature of the employer contributions used to fund benefits from the Family Burden Equalisation Fund. “Family allowance is designed as partial support for the burden of maintenance, which is why it is also fair that the level of the allowance is based on the level of maintenance costs for the children. This also applies to Austrian citizens whose children live abroad,” Mazal emphasises, countering the criticism that the Austrian proposal is indirectly discriminatory and violates the principle of equality.
Every child is of equal value
Mazal reaffirmed his position in an interview with Vorarlberg Online: “Every child is of equal value to us.” It is precisely this circumstance that necessitates indexation. If a child moves from a poorer EU country to Austria, their parents would, of course, receive a higher family allowance, as they would also have higher costs. Why they should receive this benefit undiminished when the expenditure is lower, however, would be questionable. “It is undisputed that the benefit is subject to export. The only question is whether Austria must export the amount or the value.”
This means that family allowance is not, as one might assume, a “family benefit” within the meaning of Chapter 8, Art. 67 et seq. of Regulation 883/2004, but a special, non-contributory benefit within the meaning of Chapter 9, §70 Regulation 883/2004. As such, the indexation of the Austrian family allowance would be a defensible option.
What does the law actually say?
Chapter 8, Article 67, Coordination Regulation: “Members of the family residing in another Member State: A person shall be entitled to family benefits in accordance with the legislation of the competent Member State, including for members of his/her family residing in another Member State, as if they were residing in the former Member State. However, a pensioner shall be entitled to family benefits in accordance with the legislation of the Member State competent for his/her pension.”
Since there has been no indexation of this kind to date, there is no specific ECJ case law for such instances. The Republic is now letting it come to a trial; criticism of the approach comes not only from the Commission but also from neighbouring states and, of course, numerous affected parties.
Correctly, albeit very briefly, Prof. Mazal’s expert opinion mentions that ECJ case law has so far fended off every attempt to allow benefit differentiations that refer directly or indirectly to a claimant’s place of residence. Rather, the ECJ has steadily expanded fundamental freedoms and the principle of equality through the judicial development of the law. Whether the technical arguments of the Republic of Austria can convince the ECJ—which has made the protection of fundamental rights and freedoms its most important task—remains to be seen.
When politics fails to create clear laws
Ultimately, the indexation of family allowance is about the struggle for a political agreement on the compensation of social benefits. Major compromises lead to superficial formulations, and a few election campaigns later, these are the very things that fall into the focus of national debate. Where the political EU cannot agree, the ECJ must step in to close these gaps—which are usually left open deliberately—in the interest of Union citizens, based on the fairly liberal fundamental freedoms and general legal principles. This is fundamentally acceptable within the constellation of the European Union, but politicians should beware of once again accusing the ECJ of interfering in political matters when they themselves cannot or will not solve them.
