Welfare state: an increase to 45 percent threatens by 2030 – expert opinion warns of an explosion in social security contributions

Berlin There is a risk of a sharp rise in social security contributions in the coming election period if the future federal government does not take countermeasures. With the economic development and the continuation of the applicable law assumed in the spring projection of April 2021, the contributions to pension, unemployment, health and long-term care insurance will increase from currently almost 40 percent to 43.2 percent by 2025.

This is forecast by the economists Martin Werding from the University of Bochum and Thiess Büttner from the University of Erlangen-Nuremberg in a report for the umbrella association for private health insurance (PKV). Your expertise is available to the Handelsblatt. By 2030, there is a threat of an increase in social security contributions to 45 percent.

In order to be able to finance the benefit commitments, according to the scientists’ calculations, not only the contribution rates but also the tax subsidies would have to rise sharply – from 144 billion euros in the current year to 179 billion euros in 2030. For example, the statutory health insurance (GKV) receives for next year a record grant of 28.5 billion euros, so that the contributions can remain stable. Long-term care insurance is also dependent on billions from the federal government.

PKV-Spitzenverband warns of a lack of scope for investments

“The grants to health and long-term care insurance are a massive burden on the state budget with additional debts,” said PKV association director Florian Reuther the Handelsblatt. “They rob you of the scope for investments in climate protection, education and digitization.”

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This is all the more true if the future federal government decides not to allow the total burden of social contributions to rise above the 40 percent mark and thus to continue the “social guarantee” that is valid for the current year.

Then an additional 144 billion euros in tax funds would be required from the federal budget for the period up to the end of the legislative period in 2025 in order to cope with the demographic and cost pressure in the social security funds.

“After the corona crisis and because of many future tasks, the federal budget is already facing major challenges,” Werding told the Handelsblatt. Stabilizing the contribution rates of the social insurance with additional tax revenue is hardly feasible in this situation. “It couldn’t be sustained for longer than one legislative period.”

The Kronberger Kreis – an association of well-known economically liberal university professors – sees the rising costs of social security systems as a problem for Germany as a business location. “You shouldn’t just accept the dynamic in social spending,” said chairman Lars Feld on Tuesday at the presentation of an expert report with proposals for a government program, particularly on questions of demographic change.

In the health and care sector in particular, spending is getting out of hand. It was only at the beginning of October that the acting Federal Health Minister Jens Spahn (CDU) promised the GKV an additional seven billion euros, so that the federal subsidy for the coming year will rise to 28.5 billion euros.

A well-equipped health system “costs money,” said Spahn in a recent interview with the Handelsblatt. As an example, he cited digital innovations, better-paid nurses and comprehensive care in hospitals.

“Demanding all of this in the morning and complaining about rising health insurance contributions in the evening does not go together,” said the CDU politician. The subsidy for health and long-term care insurance must therefore continue to rise.

Health insurance companies demand sustainable financing of health expenditure

The health insurance companies are demanding sustainable financing, otherwise there is a risk of an “explosion” in the contribution rates, warned the chairwoman of the Association of Substitute Health Insurance Funds, Ulrike Elsner, on Tuesday. The head of the Techniker Krankenkasse, Jens Baas, also assumes that the new federal government will not be able to avoid increasing the contributions and burying the “social guarantee”, despite the high federal subsidy.

If the 40 percent mark is once, the contributions could rise quickly, Baas told the Handelsblatt. “That is why my plea is: We have to deal with the expenses. In the past eight years the system has only gotten more expensive. “

The financial situation of the statutory long-term care insurance is similarly critical. According to calculations by the National Association of Statutory Health Insurance Funds, income of EUR 52.62 billion will be set against expenditure of EUR 54.48 billion in the coming year. This results in a deficit of 1.86 billion euros, which, however, does not yet take corona expenditure into account.

“Stabilizing the finances of long-term care insurance will be a central task for the traffic light. You should act quickly, ”said GKV board member Gernot Kiefer in the Handelsblatt last week.

Expensive projects of a possible traffic light coalition, such as a capped care contribution, are not yet included. How exactly the SPD, Greens and FDP want to stabilize the finances is still completely open. In the exploratory paper, for example, with the commitment for more and better paid nurses, only additional burdens for the health insurers can be found.

Suspending the catch-up factor will cost the pension fund dearly

There is additional spending in the pension fund because the grand coalition has suspended the so-called catch-up factor, which dampens pension increases in times of economic crisis, until 2025. According to the federal government’s pension insurance report, the pension contribution rate will rise from 18.6 percent today by three percentage points by 2030.

According to calculations by Werding and Büttner, the federal government will then have to inject 146 billion euros instead of the current almost 104 billion euros. And unemployment insurance also has to refill its coffers, which were empty after the corona record spending. According to the law, the contribution rate will be increased again from 2.4 to 2.6 percent in 2023.

Not only the PKV association director Reuther, but also Büttner and Werding complain that the growing need for subsidies from the federal budget is taking away the scope for investments.

Even if the contribution rates rise, as assumed in their base scenario, the need for consolidation in the federal budget will rise almost continuously to up to 44 billion euros in 2030 if the debt brake is to be adhered to.

The government would have to cut spending elsewhere in order to be able to finance the federal grants in compliance with the debt rules. If the contribution rates are to be stabilized below 40 percent, the federal government would have to raise an additional 144 billion euros for the years 2022 to 2025, as described.

That is more than the expenditure for transport and digital infrastructure planned for this period in the federal financial plan, which totaled 126 billion euros.

The economists of the Kronberger Kreis consider the previously announced measures by the SPD, Greens and FDP to stabilize the social systems to be far from sufficient. “Funds from the federal budget will increase in the future,” warned Berthold Wigger, professor of finance at the Karlsruhe Institute of Technology. That is not compatible with fiscal budget discipline.

Kronberger Kreis proposes a protective mechanism for the federal budget

The Kronberger Kreis therefore considers a protective mechanism for the federal budget to be necessary. Countering the desire to expand social security benefits will not be an easy task for the new federal government because the elderly are becoming more and more important politically, according to the report.

The professors therefore propose to make the implementation of tax subsidies in the social security systems more difficult. For such decisions, for example, it could be initiated that the legislature must pass them with a two-thirds majority.

In addition, economists see it as necessary to quickly reinstate the catch-up factor in the pension formula. “That makes a lot of difference,” said Feld. With the catching-up factor, pensions would only increase by 2.5 to 2.8 percent in 2022 instead of 5.5 percent.

“The current suspension of the catch-up factor is tantamount to manipulating the pension formula to the detriment of the younger generations,” adds Wigger. The reinstatement is nothing more than a fair burden sharing of the economic effects of the corona crisis between the employed and the retirees.

Finally, the Kronberger Kreis proposes an increase in the retirement age. From 2031 it must be increased and linked to the development of life expectancy. Demographic change is a major challenge for the development of pension insurance, emphasized Wigger: “It is therefore very regrettable that the coalition negotiations probably agreed not to raise the retirement age.”

More: Employers see the 40 percent mark in social security contributions in jeopardy

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