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concerning the opening to the public of the historical archives of the European Economic 
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file have been declassified in conformity with Article 5 of the aforementioned regulation. 
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
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COMMISSION OF THE EUROPEAN COMMUNITIES
C0MC85) 594 final
Brussels, 5 November 1985
REPORT IN RESPONSE TO THE  
INSTRUCTIONS OF 18 FEBRUARY 1985  
TO THE ARTICLE 65 WORKING PARTY  
OF STATISTICAL EXPERTS
Communication from the Commission to the Council
(85) 594 final

Treatment of^familjr allowances and particularly  
changes therein in the report by the Statistical  
Office of the European Communities  
on the annual salary adjustment  
(Article 65 of the Staff Regulations)
Report by the Working Party of Statistical Experts,  
widened to include experts in the field of pay-  
adjustment, in accordance with Section II, N* 1.3  
of the Annex to the Council Decision of 15.12.1981  
(81/1061/EURAT0M,ECSC,EEC)
1. Introduction
In connection with the Statistical Office’s 1 9 8 4 Report on trends in public  
service remuneration in the Member States, the Council Working Party on  
Staff Regulations expressed reservations as to whether the 1981 method had  
been correctly applied in respect of the changes in the Italien system of  
family allowances.
.  'S
In addition the question was raised as to whether there had already been  
comparable changes in the system in the past.
Thus, in a joint statement (Declaration of the Council and Commission of  
I8.2.I9 8 5) the Council and Commission requested the Working Party,"Joint  
Index, Article 65 of the Staff Regulation" to clarify the following points?
1. How has the procedure been applied in the' past in respect of family
allowances ? . .
2. Has the application of the procedure led to anomalies ?
3. If so, can the application of the procedure be improved, so that these  
anomalies can be avoided in future, without changing the procedure 
itself ?
The Working Party "Joint Index - Art. 65 of the Staff Regulations", widened  
to include national experts in the field of pay adjustment, examined the  
questions at two meetings (21.3.1985 and IO. 6.I9 8 5) and prepared this  
report.

2. Background to the ”1981 method."
Before discussing details on family allowances the Working Party once again  
noted the background to the Council Decision of I 5.i2.i9 8l on the method  
for adjusting the pay of officials of the European Community.
The Council Decision of I 5.i2.i9 8l changed a number of details in the former  
method, whereas other details were explicitly or implicitly confirmed.  
Accordingly, in order to assess the annual adjustment method it is necessary  
to examine not only the text of the Decision of I 5.i2.i9 8l but also the texts  
of the earlier methods.
Over the years there emerged a need to make decisions on pay adjustment  
before detailed statistics on pay trends in the Member States became  
available. Accordingly, the Council in its Decision of I 5.i2.i9 8l confirmed  
the earlier method insofar as the development of pay is not determined in  
line with the actual average pay of all civil servants, but on the basis  
of calculations relating to a notional typical civil servant.
This notional typical civil servant is defined as the mean derived from 
an unmarried civil servant and
a married civil servant with a wife and two children.
In this notional calculation it is also assumed that the civil servant's  
pay constitutes the only source of income of himself and his family.
It emerged from the discussion that all Member States had so far prepared  
their reports in line with this interpretation of the **1981 method".
3· The family allowance systems and their treatment in the annual report
The Member States' delegations gave detailed reports on what family allowances  
existed in their countries and explained how these payments were taken into  
account for the annual report on trends in public service pay.
In addition, the Statistical Office of the European Communities examined the  
treatment of family allowances in the annual reports for recent years.
It emerged from the accounts given by the delegations and from the annual  
reports that four systems of family allowances can be distinguished:
1. Fixed sum per child/dependant
(Example: United Kingdom «- child allowance : £ 27 per child, payable to  
the mother).
2. Family allowance in the form of absolute sums, but graduated in line with  
the family's total income
(Example: Italy - Aggiunta dLi famiglia, new system).
3. Family allowances as part of, and linked to, civil servants' pay  
(Example: Germany - Wohnungsgeld, dependent on marital status).
4. Tax relief in the form of tax-free allowances for income tax assessment  
purposes.

- 3 -
Annex I shows which of these systems is used in the individual Member States.
Adjustment of the fixed sums in the first system is in some cases effected on  
annual basis, in line with changes in pay; however, in most countries this  
adjustment is made only occasionally (every five to ten years or thereabouts),  
in relatively large steps.
Adjustment of the second system (income-related family allowances) requires  
the adjustment of two elements :
- the income thresholds
- the amount of family allowances.
In the third system adjustment is carried out automatically in line with pay  
increases.
Adjustment of the tax-free allowances (fourth system) takes place in most  
countries only occasionally, but then in large steps.
The effect of family allowances on net earnings differs greatly from one system  
to the next:
In the first system family allowances as a proportion of net income fall as the  
salary rises. In the period between adjustments there is a reduction in real  
terms which depends on the rate of inflation, whereas the occasional leaps  
lead to a (no doubt lower) leap in net pay.
The second system is designed to give the lower-paid groups not only a relative  
but also an absolute advantage. However, in practice incomplete adjustments or  
failure to adjust often lead to a real reduction in family allowances in all  
grades.
In the third system, of which the example given is the Federal Republic of  
Germany, the basic level of the place-of-residence allowance is graduated in  
four pay classes, depending on the category to which the civil servant belongs,  
while the family-related components in this allowance are the same, in absolute  
terms, for all civil servants. With reference to basic salary,  the family-related  
components are greater in percentage terms for lower grades than for senior  
ones. However, its impact on the percentage trends in net earnings is very  
small, because the family allowances are coupled to the general pay trends®
The fourth system (tax-free allowances) works to the advantage of higher-paid  
groups in countries with high rates of tax progression. Its impact on percentage  
trends in net pay corresponds approximately to that of the first system: slow  
real reduction in family allowances with occasional leaps.
The report by the Statistical Office of the Communities, which was based on the  
reports by the authorities in the Member States, has always taken family  
allowances into account. Accordingly, the annual special indicator has in all  
cases incorporated the trends in family allowances.

- 4 -
4« Major changes in the system of family allowances in the past« — w ga— — w w m b — aMeawa— — w a a a a — »— — i M B « · w n w a w — — M*ii,tinri· i  [■iiuii'iiinlT >«aB a,« , 'i»M«uafcgB6ta8aaaM»«wwBBMc»>«i!»«MW«i«Mii»»i<»iul iii.« « ft* 'W L i,''iiii« 'T « ia i
From the delegations* reports it emerged that the systems of family allowances  
in various Member States had in some cases been substantially modified in  
the past.
Annex 2 shows examples of some of the major changes to the national systems  
of family allowances.
Undoubtedly the transition from tax-free children's allowances for income  
tax assessment purposes to payment of a fixed sum per child had the greatest  
impact on the development of net earnings.
With this measure the Member States attempted to increase the tax burden on  
higher-earning groups while at the same time raising lower incomes. Given  
the progressive income tax rates applied in the Member States, this measure  
led to a reduction in net pay down to intermediate grades, whereas only  
the lowest grades enjoyed tangible increases. On the whole this change has  
led to lower increases in the net earnings of the average civil servant.
The second change in the system of family allowances which has been adopted  
by several Member States is the transition from a fixed sum per child to  
an income-linked children’s allowance and this had a similar non-linear  
effects reduction in high incomes, relative improvement in low incomes.
Even if originally the aim was to redistribute incomes without changing the  
size of the total budget, in practice the system has often led to a relative  
reduction in family allowances for all grades and thus to a relative  
reduction in net average earnings.
Bearing in mind the statements made by the delegations at the meeting and  
after examining the annual reports for recent years, it can be said that  
hitherto all these major changes to the system of family allowances have  
been taken into consideration in the annual reports in calculating trends  
in net earnings and that, accordingly, these changes have in turn affected  
the special indicator (generally in a downward direction).
5. Historical survey of family allowances in the Italian public sector  
(Report by the Italian statistical expert)
a) Initially (before 1 9 7 8), allowances were paid for each dependant at  
levels varying with the degree of kinship involved. They were not  
subject to tax.
In addition, there was a flat—rate tax reduction for the wife and a  
further, progressive tax reduction based on the number of dependent  
children. This tax relief was independent of income and applied equally  
to all civil servants in identical family circumstances.

b) Up to I 98O allowances increased and in 1980 were made uniform for all  
dependants (wife and children Lit 19 76O per month for each person).
As regards tax, the same criteria were applied; the amount deductible  
from taxable income was increased.
c) Prom 1 July 1983» supplementary allowances were paid for all dependants  
in addition to the allowances described above. They varied according to  
the number of dependants but fell progressively as the family's total  
inoome increased. Beyond a certain income level no supplementary  
allowances were paid.
As regards tax, the situation remained more or less unchanged.
d) Prom 1 January 1984»  as a result of inflation and the inflation-based  
wage indexation system, a growing number of civil servants exceeded the  
income thresholds for entitlement to the supplementary allowance and  
accordingly lost all or part of this allowance.
Summary
Family
allowancesStage 1 
(before 1978)
-Allowances depend  
on the number of  
dependants
-Different amounts  
for wife and  
childrenStage 2 
(until 1980)
-idem
-Equal amounts  
for wife and  
childrenStage 3 
(1.7.1983)
-idem
-idemStage 4 
(1.1.1984)
—Allowances  
reduced with 
increasing  
income
-idem
Supplementary
allowances
(1)-Proportional —idem
to the number  
of dependants
-inversely —idem
proportional  
to income
Tax relief
(2)—Fixed sum for  
spouse and  
additional 
amounts propor­
tional to number  
of children-idem —idem -idem
(1) Wot paid if total family income exceeds a certain amount.
(2) Tax relief both for dependent spouses and for dependent children has progressively  
increased.

e) The new System had the following general effects:
Initially, from an individual point of view, there was an increase in the  
net earnings of the lower-paid and a decrease in the net earnings of the  
higher-paid.
However, the income thresholds for the supplementary allowance were not 
raised in line with inflation; as a result a number of civil servants in 
the intermediate range lost their entitlement to the supplementary 
allowance. In addition, t'-e increases in the supplementary allowances did 
not fully compensate for price increases. This led to a drop in purchasing 
power in the light of relatively high inflation.
The final result of this trend was that the increase in real net earnings 
which initially applied in 1983 was subsequently reserved, due to the 
failure to adjust, and that there was a general fall in purchasing power.
The budgets for the years concerned show that expenditure on family 
allowances remained stable until the first half of 1983, rose considerably 
from July 1983 on and then gradually dropped until, finally, it fell below 
the nominal value for 1982.
The impact of these measures has also been felt in the Specific Indicator  
for Italy, calculated by EUROSTAT.
6. Conclusions
Following this expose the Working Party came to the unanimous conclusion that 
the "1981 method" had been applied correctly both in letter and spirit to the 
reform of the Italian family allowances, that the method had also been applied 
correctly in earlier years and that there had been no anomalies.
However, some delegations were of the opinion that the 1981 method did not 
effect the exact average for all civil servants, because it assumed that one 
half of the civil servants were single and that the other half were married 
and had two children, although there was no statistical evidence to suggest 
that this distribution reflected the realities in the Member States.
However, one delegate pointed out that in his country the practice was to 
compare the special indicator with the per capita wage sum index for public 
sector employees and that so far no major discrepancy had been noted.
The Working Party was also of the opinion that the procedures for applying the 
1981 method should not be altered. Member States which hitherto had prepared 
their report with July 1 as reference date should continue to do so because - 
in the long run, at any rate - this procedure did not lead to errors, whereas 
a change in the reference date might well jeopardize the validity of the 
results.

Annex 1
The systems of family allowances for civil servants in the Member States
Statust 19Ó4
Deutschland
Place-of—residence supplementi Poma part of salary  
Sum per child as part of )
13th monthly salary  
Children's allowance
United Kingdom  
Child allowance
Family supplement  
Danmark
Children's allowance  
Family allowance
Hellas
Family allowance
Tax-free allowance for income
tax assessment purposes
Ireland
Children's allowance
Social children's allowance  
Tax-free allowance for income  
taux assessment purposes
X e lfà y a e
Children's allowance  
Tax-free allowance for income  
tax assessment purposes
France
Family allowances
(allocations familiales)  
(supplément familial de  
traitement)
Tax relief
Italia
Family allowances
(assegno integrativo)
(aggiunta di famiglia  
ordinaria)  
Tax-free allowance
Mederlande
KindertoelageDepends on family's total  
income
Fixed amount, payable to the 
mother
Fixed amount  
Depends on income
Fixed amount for all levels  
Tax relief
Taxable, fixed amount
Tax free  
Tax relief
Fixed amount, tax free  
Tax relief
Fixed amount
Forms part of salary and  
depends on the number of  
children. It consists of a  
fixed amount and a sum  
proportional to salary with  
a minimum and a maximum  
Tax relief in the form of  
"quotient familial" with a  
ceiling
Sura per dependant, graduated  
in line with family's total  
income
Fixed amount, tax free  
Tax relief
Fixed amount, tax freeSystem of ad.iustment  
to price trends  
Adjustment is linked to  
changes in salary
No adjustments sofar
Adjusted annually
(Regular but incomplete  
[adjustments
Linked to salary  
Adjusted annually
Regular but incomplete
adjustments
ditto
No adjustments
(Regolar, index-linked  
(adjustments
Adjustment is not  
automatic
same
same
Incomplete adjustments  
of income thresholds and  
amounts
Incomplete adjustments  
ditto
Annual adjustments lower  
than inflation rate
Luxemburg

Annex 2
Major changes in the system of family allowances
1. Transition from tax-free children's allowances for income tax assessment  
purposes to fixed-sum children's allowances
Impact of the measure on the special indicators
Substantial reduction in salaries of intermediate and upper grades  
Relative increase in lower salaries  
Reduction in average salaries.
2. Transition from family allowances without income thresholds to income-related  
family allowances
Countries concerned: DeutschlandCountries concerned: Deutschland
United Kingdom  
NederlandYear of change: 1975
1977-79
1978
Italia
Denmark1983
1977
Impact of the measure on the special indicator:
Reduction in higher salaries  
Increase in lower salaries  
Reduction in average salaries

Annex 3
Comments on the report by the Netherlands Delegation
Central Statistical Office
First paragraph of the conclusions:
"Following this exposé the Working Party came to the unanimous conclusion that the  
way in which the changes in the Italian family allowances had been incorporated  
into the calculations did not conflict with the "1981 method". Neither did the  
way in which modifications in family allowances in the Member States were treated  
previously conflict with the above-mentioned method. Accordingly, the Working  
Party could not find any anomalies (or irregularities)."
First sentence of the fourth paragraph of the conclusions:
"The Working Party was also of the opinion that, as no irregularities had been  
found in the application of the "1981 method", there was no need to propose  
modifications to the application."
The second sentence of the fourth paragraph can remain as it stands.
Ministry of Internal Affairs
Final sentence of section 2  
Addition
"Moreover - in view of their brief - the delegations had not made a detailed  
scrutiny of this interpretation and its merits in the light of the objective  
referred to in the method. Such task was considered to be the responsibility of  
the Council. Thus, work was restricted to examining the children's allowance  
element in the method and, in particular, the problem which had cropped up in  
incorporating the Italian data."
First paragraph of the conclusions:
"Following this exposé the Working Party came to the unanimous conclusion that  
the way in which the changes in the Italian family allowances had been incorporated  
into the calculations did not conflict with the established, standard practice of  
applying the 1981 method. Neither had the treatment of previous changes in the  
family allowances in the Member States been in conflict with this method.
Second paragraph of the conclusions:
Addition:
"Some delegations thought that this could lead to a discrepancy between the way in  
which the method was applied and the basic principle referred to in the method  
(of reflecting what on average is established in the Member States)."
Fourth paragraph
First sentence:
"The Working Party was also of the opinion that, as no irregularities had been  
found in the practical application of the "1981 method", and as application was  
uniform in the Member States, there was accordingly no need to propose modifications  
to the application."

Annex 4
Comments on the report by the United Kingdom Delegation
.  i
"The U.K. members of the Working Party were unable to agree the conclusions  
of this report and they expressed their reservations in a letter to the  
Chairman, dated 25 July. They felt that the 1981 Method had been applied  
generally correctly in spirit, but that anomalies had arisen. In the U.K.  
view insufficient criteria had been formally agreed by all Member States  
with regard to the application of the Method, eg reference datps for  
Member States' annual returns, and anomalies were bound to arise. The  
U.K. position will be fully explained when the report is discussed at the  
appropriate meeting of the Working Party on Staff Regulations (Groupe Statut).
It follows from this that where the report used such terms as "unanimous",  
it should be amended to "all members except the United Kingdom".