With its ruling on the Climate and Transformation Fund (KTF) for the financial year 2023 and beyond, the Federal Constitutional Court has opened Pandora’s box. The foreseeable and self-inflicted budget emergency can only be cured by another emergency, which serves as a justification for the renewed suspension of the debt brake – but this emergency is not in sight. On the contrary: tax revenues are the highest that the German state has ever demanded of its citizens, both in absolute terms and relative to GDP. At the same time, subsidy spending is also higher than ever before due to the certainly hasty and fatal “energy transition”. At the same time, the state’s investment rate has been reduced to a historic minimum. But that’s not all: the welfare state is also more comprehensive than ever before. Almost a third of the added value is distributed as social spending to those who are considered needy. Contributions to social insurance have exceeded the limit of 40 percent of average gross income, contrary to all assurances, so that social insurance is also generating historical maximum income.
The analysis by politicians and political consultants states that there is a revenue problem that can only be solved by lifting the debt brake. The fact is, the debt brake reveals the obvious: our state has a spending problem in that it uses its (sufficient!) income too much for consumption and too little for investment. The entire peace dividend with falling military spending, as well as the savings from reduced investments, together with the growing tax and contribution revenues, have all been redirected into the social budget. Not only the current government is responsible for this, but also and above all the “grand coalitions of sitting out”. What now, Germany?
Let’s start with the largest social security item, the statutory pension insurance. The aim of the traffic light is to guarantee the double stop line and at the same time not to allow the retirement age to rise any further. This would make the non-constitutional federal budget even less constitutional, because then the federal subsidy would have to be increased. But this would only be possible through further issuance of debt securities in breach of the debt brake. what to do when it burns? In its most recent annual report, the Council of Experts once again dealt with this topic and, in addition to a few “old camels”, also had “surprises” in Peto. One of the “old things” is, for example, linking the retirement age to life expectancy according to the Scandinavian model, which is correct but would come too late. The strengthening of funded replacement pension provision has also been called for for decades, but is also coming too late for the baby boomers. Because they no longer have decades to wait for the fruits of a current reduction in consumption. Simply reinstating it while simultaneously strengthening the sustainability factor from Schröder’s Agenda 2010 is a really successful proposal from the “economic wise men”. It would keep the contribution level almost constant and at the same time reduce the pension level so that sustainability and intergenerational fairness would be guaranteed.
But obviously the Advisory Council ultimately got “cold feet”. Because the reduction in pension levels (not pensions!) results in increasing relative poverty in old age. This should then be combated by reducing above-average pensions and increasing low pensions from these savings. A surprising and extremely unsuitable therapy. Since there is property law protection for claims that have already been acquired, the “medicine” would only take effect when the patient is long dead. The demographic wave is coming within the next two decades! How fundamentally wrong the Council of Experts is on this point is also shown by the fact that fighting poverty is a task for society as a whole that should be financed not only by contributors and future pensioners, but by everyone – including civil servants and the self-employed. For obvious reasons, the latter would not help combat poverty through pension insurance. And is that supposed to be fair? Redistribution has no place in statutory pension insurance: the life benefit principle applies here. And it should stay that way in the future.
Only the life expectancy differentials between low and high pension recipients could be valid as an argument based on the Swedish example. But then we would also have to introduce risk differentials in health and unemployment insurance, which would then be at the expense of low-income earners. The redistribution within the statutory pension insurance could therefore prove to be the next Pandora’s box!
A notice: The article appears in a modified form as an editorial in issue 1 (2024) of the journal Knew.
Blog post on the topic:
Norbert Berthold (2023): Boomer in criticism. Sustainability factor, existing pensions and “progressive” salary points
Podcast on the topic:
Pension reform à la the Expert Council. Distribution policy proposals are misleading
Prof. Dr. Norbert Berthold (JMU Würzburg) in conversation with Prof. Dr. Bernd Raffelhüschen (ALU Freiburg)
Albert Ludwig University of Freiburg