40 percent mark should fall soon

And the President of the Confederation of German Employers’ Associations (BDA), Rainer Dulger, emphasizes that the federal government should also have respect for the net income of employees, which should not be diminished by increasing social contributions: “Let’s put our hands on our lap and do nothing then the 40 percent mark will fall. We can’t just accept that. “

For 2021 the grand coalition had decided on a “social guarantee”. Corona-related additional expenses were paid with tax money in order to be able to secure the 40 percent mark in social contributions.

A “moderate” increase in the care contribution has already been announced

The new federal government believes that stabilization is still worth striving for. “We want the employer and employee burdens not to continue to rise,” said the new FDP parliamentary group leader Christian Dürr recently to the Handelsblatt. “And by that you can measure the traffic light government.”

But Dürr is unlikely to put his hand in the fire to ensure that the brand is not torn after all. Because the SPD, Greens and FDP have already announced a contribution rate increase in their coalition agreement – in terms of care. In unemployment insurance, the end of the time-limited contribution reduction decided by the grand coalition is about to end.

And when it comes to health and pensions, the aging of society alone means that increasing expenditure can be expected. Without reforms in the social security systems, there is a risk that the contribution burden will rise to 43.2 percent by the end of this legislative period and to 45 percent by 2030, warn economists Thiess Büttner and Martin Werding.

It is therefore likely that the total of contributions, which is 39.95 percent today, will exceed the 40 percent mark in the course of the election period. Anja Piel, member of the board of the German Trade Union Federation (DGB), does not find this dramatic.

Because it is clear: “With a permanent, isolated stipulation, you limit the scope for action,” said Piel, who is also the alternating chairman of the administrative board of the Federal Employment Agency (BA) and the Federal Board of the German Pension Insurance (DRV), recently in front of journalists.

As far as the traffic lights are concerned, the problem is likely to arise initially in statutory health and long-term care insurance, which are already facing a huge financial gap. In 2021 alone, the federal government had to stabilize the health insurances with a record subsidy of 28.5 billion euros in order to avert higher contributions for the insured – with an upward trend.

Because according to calculations by health insurance groups, the necessary subsidy will be almost 31 billion euros in 2022. “I think it is completely out of the question that the traffic light can keep the health insurance contributions stable in the next four years,” says a health insurance manager.

He thinks a jump of half a contribution rate point is possible. So far, the statutory health insurance contribution rate has been 14.6 percent, plus an additional contribution of 1.3 percent on average in 2022. According to a report by “Welt am Sonntag”, 19 out of 97 statutory health insurers increased this additional contribution at the turn of the year.

It is already certain that the contribution to statutory long-term care insurance will increase, which is currently 3.05 percent. The SPD, Greens and FDP agreed in the coalition agreement to “raise this contribution moderately”. Childless expect an increase in premiums as early as 2022: They will then pay 3.40 percent instead of the previous 3.30 percent of their premium income into long-term care insurance.

When it comes to pensions, the coalition could be confronted with debates on contributions in the election year

In the pension insurance sector, the good labor market development in the past few years had led to rising premium income, which made it possible to finance extended benefits such as the maternal pension with low contributions. The contribution rate has been 18.6 percent since 2018 and, according to the financial estimate of the German Pension Insurance (DRV), will remain at this level until 2023.

But from the middle of the decade the baby boomer cohorts will retire, which will dampen the rise in premium income and drive up expenditure. According to the Federal Government’s assessment, the number of employees subject to contributions will increase slightly from the current 38.9 million until 2023 and then decrease by nine percent in the next 15 years.

In the near future, pension insurance can still dampen demographic development by reducing the statutory sustainability reserve. But she expects the contribution rate to rise to 19.5 percent in 2024, and a year later it should be 19.7 percent.

Without reforms, contributions will rise further to 22.3 percent in 2035, while the pension level will decrease to 45.7 percent in the same period. The traffic light coalition has set itself the goal of stabilizing the pension level “permanently” at 48 percent.

The scientific advisory board at the Federal Ministry of Economics, however, does not consider this to be “a sustainable long-term solution”, as he wrote in a highly regarded report in mid-2021, for which he had to listen to a lot of criticism from the then Vice Chancellor and current Prime Minister Olaf Scholz (SPD).

Because if the pension level is to be kept stable at 48 percent and the contribution rate is not to rise above 20 percent – as the “pension guarantee” of the grand coalition provides until 2025 – half of the federal budget would have to flow into the pension fund in 2045, according to the Council’s calculations.

An ever higher tax subsidy to the pension insurance could not be the solution, emphasizes IW director Hüther. He suggests linking the retirement age to life expectancy. An increase in annual working hours by adjusting the weekly working hours to those in Switzerland could also help to stabilize the income of the social security funds. In the Confederation, employees worked an average of two hours more per week than in Germany.

“The government is making it clear that – for fear of a conflict – it has no demographic reform concept,” criticized Hüther. “That is the greatest weakness of the coalition agreement.” After all, the SPD, Greens and FDP want to reintroduce the so-called catch-up factor before the pending pension adjustment in 2022, which will dampen the increase and protect the finances of the pension fund. Nevertheless, the traffic light could be confronted with debates about rising pension contributions in election year 2025 of all places.

The contribution to unemployment insurance will also increase. Because the BA had built up a reserve of almost 26 billion euros, the grand coalition reduced the unemployment contribution from January 2020 to 2.4 percent. From January 2023, it will be increased again to 2.6 percent according to current law.

IAB proposes a premium increase of “a few tenths of a percentage point”

Because of the corona-related additional expenses for short-time working and unemployment benefits, the BA’s reserve has long been used up. To cover their expenses, the federal government has so far supported unemployment insurance with 24 billion euros.

Since the BA should soon be able to stand on its own two feet again and also have to build up a reserve for future crises, the traffic light could lead to a debate about an earlier or higher contribution rate increase.

The Institute for Employment Research (IAB) has just brought about a premium increase of a few tenths of a percentage point. “The Federal Agency needs sufficient financial reserves so that it does not have to immediately fall back on the federal liquidity aid in recessions,” says a new study by the Nuremberg Institute.

Labor Minister Hubertus Heil (SPD) had already stated in an interview with Handelsblatt last spring that he considers the 40 percent mark for social contributions to be important, but that he does not want to guarantee it at any price. The aim is to keep the contributions stable even after the crisis. “But I’m not saying we will freeze everything.”

More: 63 billion euros per year – that’s why unemployment is so expensive in Germany.