OECD says reallocating social spending could lift child outcomes and curb future public costs

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OECD social spending and children

Highlights

OECD report states that reallocating social spending towards early childhood education could reduce child poverty by 2.25 percentage points over the next decade, versus 1.5 percentage points if trends persist.
Analysis finds that increasing social spending by one percentage point for family cash benefits or active labour market policies boosts effectiveness against relative child poverty by 27% and 24%, respectively, while potentially reducing expenditure growth.
Investing an extra percentage point of social spending in healthcare, housing, and social services makes spending increases about 9% more effective at reducing severe material deprivation and may curb long-term social expenditure growth.

OECD report highlights higher returns from policy mix changes

As reported by OECD, its new report, "Spending Better for Children through Social Policy," applies a value-for-money framework to assess how the level, allocation and design of social spending affect child poverty, material deprivation, education and health, while also examining implications for long-term public expenditure.

The report says that if social spending continues to grow at its historical pace, child poverty could fall by around 1.5 percentage points over the next decade. It argues that greater gains can be achieved if governments direct more support toward helping parents into work, providing adequate income protection and ensuring access to high-quality services.

OECD Secretary-General Mathias Cormann says investing in children is one of the most important actions governments can take to build a stronger future. He says spending more can help, but spending better can have a much larger effect by improving children's life chances while supporting stronger economies and more sustainable public finances.

Early education, income support and jobs policies show strongest effects

Among the policy areas identified, early childhood education and care appears to offer the strongest returns. The OECD says directing one additional percentage point of social spending growth to expanding early childhood education and care coverage could make that investment around 50% more effective at reducing child income poverty than if budget allocations remain unchanged, cutting child poverty by about 2.25 percentage points over the next decade instead of 1.5 percentage points.

The report adds that wider access to early childhood education and care, especially for disadvantaged children, can also support parental employment, strengthen family incomes and reduce reliance on other support. Its analysis suggests that the extra investment could leave social expenditure around 2% lower over the long term than under an unchanged budget allocation, while also reducing the share of low performers in PISA by around 4%.

Adequate income support remains important for families most in need. The OECD says increasing the share of social spending devoted to family cash benefits by one percentage point could make future spending increases around 27% more effective at reducing relative child poverty, while allocating an additional percentage point to active labour market policies could improve their effectiveness in reducing child poverty by around 24% and lower expenditure growth by around 1% over the next decade.

Healthcare, housing and other social services also remain central to addressing needs that extra income alone may not cover. Directing one additional percentage point of social spending to those areas could make future spending increases about 9% more effective at reducing severe material deprivation, and greater investment in healthcare could also help moderate the long-term growth of social spending.

In our earlier article on Malaysia’s 2025 subsidy and welfare spending, we covered how federal subsidy outlays fell sharply as petroleum subsidies declined amid lower crude oil prices and tighter targeting. At the same time, cash and welfare assistance to individuals and families surged through programmes such as Sumbangan Asas Rahmah, Sumbangan Tunai Rahmah and Budi Madani, shifting the overall mix of domestic grants toward more direct household support.

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