Families and Older People Would Benefit the Most from Germany’s “Grand Coalition”

Alongside families, pensioners will benefit the most financially from the planned reforms put forward by Germany’s potential new coalition government, the “Grand Coalition” made up of the CDU, CSU and SPD. If current positive economic trends continue until 2025, the age group to benefit the most from these reforms will be the over-65s, who will be on average 622 euros better off a year per household. Only if nursery school fees are completely scrapped will the 26 to 39 age bracket be better off than pensioners, seeing an increase in their annual household income of 743 euros. If the economic climate worsens, however, the 48 per cent limit for pensions will become more expensive, leading pensioner households to benefit the most with an additional 1,420 euros a year.

These are the key findings of calculations conducted by researchers from the Centre for European Economic Research (ZEW), Mannheim, and the Institute of Labour Economics (IZA), Bonn. The aim of the analysis was to examine what effect the planned reforms put forward by Germany’s potential new coalition government, known as the “Grand Coalition”, could have on the household incomes of ordinary Germans. As well as the stabilisation of the pension level at 48 per cent, researchers also included in their calculations the almost total abolition of the solidarity surcharge, an increase in child benefit and the tax-free child allowance, the scrapping of the upper limit for child benefit supplement, a reduction in unemployment insurance contributions, and finally the equal division of health insurance contributions between companies and employees.

The calculations are based on the coalition agreement drafted by the CDU, CSU and SPD. One reform laid out in the agreement but not included in the calculations made by ZEW and IZA is the introduction of a basic pension for the long-term insured.

Families affected by child poverty set to lose out

Researchers looked at four different age groups: people aged 18 to 25, 26 to 39, 40 to 64, and the over-65s. According to the analysis, the age group that will benefit most from the continuation of nursery school fees is the over-65s, who will be on average 622 euros better off each year, followed by the 40 to 64-year-olds, who will see their annual income go up by 511 euros on average. Meanwhile, 26 to 39-year-olds will have on average an additional 442 euros at their disposal each year, and 18 to 25-year-olds only 161 euros. If nursery fees are scrapped, however, households in the 26 to 39 age bracket would be among the biggest winners, being on average 743 euros better off each year. In this scenario, over-65s households would still on average have an additional 622 euros at their disposal per year, while households in the 40 to 64 and 18 to 25 age brackets would see an average increase in their annual income of 572 and 224 euros, respectively.

“Alongside senior citizens, families and the middle class are clearly the focus of the Grand Coalition’s planned reforms,” says Dr. Holger Stichnoth, acting head of the ZEW Research Group “International Distribution and Redistribution”, “these reforms do, however, seem to be taking a rather scattergun approach.” As a result, families suffering from child poverty will not feel the effect of the reforms at all. “People receiving unemployment assistance will not gain much from an increase in child benefit. In general, people with low incomes benefit little from nursery school fees being scrapped because they do not tend to pay many fees in the first place,” says Stichnoth.

Professor Holger Bonin, Research Director at IZA, adds, “If the government wants to do something about the increased risk of poverty among children, it needs to make sure that the additional money intended for families is used in a more carefully targeted way, for example in the form of an income-based child benefit or facilities to ensure better social inclusion of children from low-income families.”

The calculations conducted by ZEW and IZA are based on data from the German Socio-Economic Panel (SOEP) of 2015.

For further information please contact:

Dr. Holger Stichnoth, Phone +49 (0)621/1235-362, E-mail holger.stichnoth@zew.de