Asset Publisher

Adobe Stock / Fokussiert

Monitor

More "Net from Gross"

On the usefulness of introducing an allowance in the social security system

The financial burden of households in Germany continues to increase in light of current crises and challenges. At the same time, experts are warning that without reforms the level of social security contributions will have to rise further in order to compensate for the consequences of demographic change. This would increase the tax burden on low-income households in particular. Could the introduction of an allowance in the social security system make a meaningful contribution to reducing the financial burden on low-income households?

Asset Publisher

Low-income households in Germany are already particularly burdened by social security contributions. The financial burden will increase further if the level of contributions continues to rise in order to compensate for the consequences of demographic change. Considering current crises and challenges, such as the recent rise in inflation, this Monitor examines whether it makes sense to introduce an allowance in the social security system.

The results of the model calculations show that the introduction of an allowance could significantly reduce the financial burden on households. An allowance of 750 euros per month would reduce the financial burden on employees subject to social security contributions by an average of 48 to 142 euros per month, depending on how it is designed.

However, many questions remain unanswered regarding the exact design of the allowance, such as the specific amount of an allowance or the definition of the target group. It is also unclear how an allowance would affect employees in the long run if fewer contributions are paid into the statutory pension scheme over the course of a lifetime. A corresponding reform of the social security system would also entail very high costs for the financing of public budgets, which could not be offset by raising the contribution assessment ceiling. The results therefore suggest that the introduction of an allowance would firstly make an (already complicated) financing system even more complicated and secondly would be too expensive.

Read the entire Monitor: "Mehr 'Netto vom Brutto' – Über die Sinnhaftigkeit der Einführung eines Freibetrags in den Sozialversicherungen" here as a PDF. The publication is only available in German.

Asset Publisher

comment-portlet

Asset Publisher