Advocate advocates for fundamental restructuring of the German social security system
In a series of studies commissioned by the Federal Ministry of Labour, economist Andreas Peichl has shed light on potential inefficiencies and unintended consequences within Germany's welfare system. His findings highlight concerns about the coordination between different social benefits, which could lead to perverse incentives and disincentives within the German welfare state.
Peichl, head of the Ifo Center for Macroeconomics and Surveys and professor of economics at Ludwig-Maximilians-Universität München, advocates for a fundamental reform of the German welfare state. He suggests that a meaningful reform of citizens' income, a key component of the welfare system, could potentially finance itself if implemented in a way that expands the transfer area.
Friedrich Merz, the Federal Chancellor of Germany, has announced plans to reform the citizens' income, aiming to significantly reduce its expenditure in the federal budget from over 50 billion euros. The reform, expected to be implemented this autumn, includes redesigning the existing citizens' income system into a new basic security for job seekers. However, Peichl expresses doubts about the short-term feasibility of Merz's plan, questioning the focus on the federal budget alone for reforming citizens' income.
The German welfare system's design may create disincentives for individuals to work longer hours or increase their earnings. In some cases, working more does not result in increased net income due to hard breaks in the system and the interplay of citizens' income, social security, and income tax. These issues can lead to absurd situations, such as someone earning more but netting hardly more or even less due to deductions in different systems.
Peichl emphasizes that the many different aids and subsidies through social benefits such as citizens' income, social security, and income tax are not coordinated with each other. This lack of coordination could lead to unintended consequences and inefficiencies, potentially undermining the overall effectiveness of the German welfare system.
In an interview with the 'Süddeutsche Zeitung', Peichl underlined the complexity and potential financial implications of reforming the citizens' income. He suggests that a broader perspective is necessary, going beyond the federal budget to ensure a comprehensive and effective reform of the German welfare state.
As the debate on welfare reform continues, it is clear that addressing the coordination issues within the system will be crucial for ensuring that the German welfare state remains effective and efficient in supporting its citizens. The plans for a reform of Bürgergeld, as announced by Chancellor Friedrich Merz, are expected to be implemented this autumn as part of several social reform laws planned by the coalition parties CDU, CSU, and SPD, setting the stage for significant changes in the German welfare system.
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