In order to help the tired economy, the three heads of the traffic light have agreed on a long list of reforms. Comprises 49 points the so-called growth initiativewhich Olaf Scholz (SPD), Robert Habeck (Greens) and Christian Lindner (FDP) presented in their roles as Chancellor, Vice-Chancellor and Vice-Vice-Chancellor in the summer. Now the Bundestag should decide on these reforms. But here a typical traffic light phenomenon occurs: the coalition partners criticize the decisions and, despite previous agreement, do not want this, that or that.
Even Chancellor Scholz is joining in. In a television interview, he distanced himself from the planned bonus for those recipients of citizens’ benefit who leave basic security behind through a job. “Personally, I don’t share many people’s theory that you have to lure someone to work,” he said RTL. However, the growth initiative states: Former citizens’ benefit recipients should be able to apply for a 1,000 euro bonus from the office after one year if they start a new job that earns them so much that they no longer need citizens’ money for six months to top it up.
The 1000 euros are now derided as a “butt-up bonus”. It is intended to circumvent a complex problem in the welfare state called “transfer withdrawal rates”: Low-earners who work a little more often often lose out on state transfer payments and have to pay more social security contributions. Despite extra work, there is hardly any net left over. The financial incentive to work is gone. The idea behind it is that the 1000 euros should compensate for this. However, resistance to the bonus in the SPD is high. The party is already struggling with the reputation of being too generous to recipients of citizens’ benefits. The Green Economics Minister, on the other hand, defended the bonus. Habeck called the suggestion very practical and pragmatic.
If the bonus actually motivates people to leave the citizen’s benefit, the return on the 1,000 euros is good for the taxpayer: a recipient of the citizen’s benefit mathematically costs the community more than 25,000 euros per year – and that are numbers for 2022, since then the citizen’s allowance has been increased significantly and rents have risen.
The economic reforms and the budget dispute are linked
The tax discount for foreign skilled workers is also controversial or has no chance. The idea from the growth initiative: Anyone who immigrates to Germany for a particularly sought-after profession should receive 30 percent of their gross tax-free income in the first year. Neighboring countries of Germany are proven to attract international skilled workers with this model. But the proposal is met with resistance from the SPD and the trade unions. And Finance Minister Lindner, who campaigned for it, will not fight for it.
If the growth initiative shrinks, it will not be able to boost the economy next year as planned. Less growth in the 2025 election year is not only politically unpleasant for the traffic light parties, it also makes it more difficult to agree on a budget. Because the expected tax revenues also fall. The budget is scheduled to be approved in mid-November. The FDP therefore definitely wants to negotiate and decide on the economic reforms together with the budget for next year. From their point of view, there could be more reforms.
But not even the agreed points have been implemented yet. “If the labor market reforms do not come, it would significantly reduce the growth opportunities,” says Claus Michelsen, chief economist at the Association of Research-Based Pharmaceutical Companies, who is assessing the consequences of the growth initiative for the gross domestic product has calculated. In the long term, labor market reforms have the greatest effect because they can alleviate the shortage of skilled workers.
The number of unemployed people is increasing, but many entrepreneurs are still looking for suitable employees. If they can hire citizens’ benefit recipients or skilled workers from abroad, that will help companies and economic growth. “The start-up bonus for citizens’ benefit recipients and the tax discount for foreign high potentials are going in the right direction,” says economist Michelsen, even if both measures alone would not save the German economy in the short term.
The Greens are skeptical about the tightening of citizens’ money
It is also unclear what will happen to the planned tightening of citizens’ money. The sanctions should be tightened again, and jobs further away should be considered reasonable. The SPD Left and the Greens are having a hard time with this. You can’t threaten virtually all recipients of citizens’ money with sanctions, says Frank Bsirske from the Greens. 99 percent of citizens’ benefit recipients also tried to get a job.
Bsirske describes the plan to introduce a monthly reporting requirement as “very problematic”: Citizen benefit recipients should come to the job center in person once a month. “This is a bureaucratic aberration that threatens to paralyze the job centers with over a million additional appointments,” says Bsirske. Labor market economists see the reporting requirement in a differentiated way: If intensive work is done in the monthly appointments, these could bring something. But without additional money for the job centers, this additional effort will probably not be possible.
The FDP is still worried about a project that will reduce bureaucratic costs for companies. According to the growth initiative, companies should demonstrate less stringently that their suppliers abroad respect human rights. The Labor Ministry of Hubertus Heil (SPD) is responsible. The ministry points out that it is coordinating closely with the EU Commission “to ensure that implementation is as uniform as possible across the EU and to prevent a patchwork of regulations for companies.” Which can probably be translated as: This is complex and can take longer than the decisions on the budget in mid-November. However, the impact of this supply chain bureaucracy on the growth forecast is small.