Economist Andreas Peichl - Advisor to Lindner's ministry: "The German budget is not healthy with citizen's income"
Mr. Peichl, we have a budget crisis in Germany. The CDU/CSU and FDP would prefer to solve it by cutting social benefits. You have done a lot of research into inequality. From your perspective, do the demands worry you or are they justified?
Andreas Peichl: It's a political question of what you want to achieve. From an economic point of view, however, I think it is completely the wrong approach to make savings on the weakest members of society. The leverage is much smaller than many would like to pretend.
Why is that?
Let's take the debate about the citizen's income...
...Markus Söder called in stern magazine for "postponing the increase in the citizen's allowance and completely rethinking it" ...
Yes, and at first glance he certainly has a point when he questions why next year's increase of 61 euros is so high. But that's easy to explain, and when you go into the details, you quickly understand why it can't be postponed or rescheduled so easily.
Why is that?
There are two reasons for the increase: Firstly, the high inflation last year. And secondly, a change in the calculation of the minimum subsistence level, which affects not only the citizen's allowance, but also the child supplement and the child allowance or basic allowance in income tax. The calculation is carried out on a statutory basis and is based on data that is only collected every five years - microdata from the income and consumer sample. In the meantime, the values are updated based on a mixed index of 70 percent inflation and 30 percent net wage development. The federal government cannot simply ignore this procedure.
But inflation has fallen recently.
Yes, and that would be the only point that could be addressed in the short term. However, we would then have to use an inflation forecast instead of an extrapolation, where the high past inflation rate is currently used twice for the adjustment, so to speak. However, this would require a new adjustment of the calculation rules. The calculation in the summer was certainly based on a higher inflation rate in the longer term. If we were to recalculate now using a current inflation forecast instead of the extrapolation, the result would certainly not be an increase of 61 euros. But it wouldn't be zero euros either.
But what?
Difficult to say off the top of my head. At best, we're talking about savings of a maximum of 1 billion euros. And that certainly doesn't fill the hole of 17 billion euros.
In other words: the German budget won 't behealed by the citizen's income ?
No, by no means. You have to look at completely different pots.
Where would it be possible to make minimally invasive and short-term savings? Is that even possible with social spending?
Minimally invasive and social policy are somewhat mutually exclusive. The short-term is the more crucial point. The minimum subsistence level is out of the question for me because it is protected by tax and constitutional law. The same applies to the abolition of spousal splitting or the commuter allowance. Although this would lead to additional revenue, both are at least partially protected under constitutional law.
What about the company car privilege?
Yes, that would be easier to implement because there are no constitutional concerns.
Where else could we start?
In social and financial policy, most likely with taxes. If the state lacks money, it can increase income tax or VAT. Of course, this leads to big discussions, as is now the case in the catering industry. But formally it is a relatively easy option.
It would mainly affect the working population. Can that be fair?
Well, if you abolish some of the reduced VAT rates, it would affect everyone's consumption.
They say we don't have a revenue problem, but a spending problem. Those were two examples of additional revenue. Where could savings be made on expenditure?
That brings us straight to pensions. The pension at 63, basic pension, mothers' pension - these are all topics that could be discussed in view of the increase in life expectancy. We may have lived beyond our means in the past. So that would be the right thing to do.
But nothing that could be addressed in the short term, right?
Yes, these are cost blocks that we have built up over ten years and that could not be eliminated with the stroke of a pen.
One suggestion is also to cut costs for refugees - especially from Ukraine. Does that make sense?
That quickly brings us back to the issue of citizens' income. Irrespective of this, however, we could discuss whether we are providing the right incentives for refugees to work.
And do we have them?
Well. First of all, I don't believe that the citizen's income will stop people from working - with the exception of the black sheep. Work makes people happy and gives many people a sense of purpose. The problem is the rules for deduction and transfer withdrawal rates - in other words, how much income is deducted from the citizen's income. This is sometimes too high, which is why it is often not worth working more if you are entitled to a transfer. However, there are several levels to this.
Namely?
From crediting rules to bureaucracy and sanctions. Many employment agencies are only concerned with calculating entitlements and not with their actual job description: job placement. However, refugees can be integrated into the labor market much better with support and placement than through sanctions. Nevertheless, we have to ask ourselves why refugees in other countries are integrated into the labor market much more quickly.
Do you have an explanation for this?
In Denmark, for example, where in relative terms twice as many Ukrainians work as in Germany, English is spoken more often in companies. There is also less protection against dismissal and less employee participation than in Germany. The biggest problem, however, is the recognition of qualifications. There are absurd bureaucratic hurdles in Germany.
In short: the problem is the bureaucracy, not the incentive structure itself?
Yes, although the incentives are unfortunately such that it only pays to work a little - in mini-jobs, for example. If I am only allowed to keep 20% of my salary after a certain exemption limit, I only work up to this exemption limit and have the rest paid out as a transfer. On the contrary, the system actually creates an incentive to work illegally. That doesn't show up in the statistics. So many people receive citizen's allowance and work illegally on building sites or as cleaners. In my view, too little is being done about this. Instead, we are struggling with bureaucracy.
Nevertheless, that would be one way of generating additional income and making savings at the same time?
Yes, of course, but more in the long term. Sanctions and incentives for the unemployed don't come close to filling the budget gap of 17 billion euros.
How would you fill the hole?
The most important question first has to be: What can I do without slowing down growth forces? There are ways to reduce transfer withdrawal rates so that people earn more income through work. This would reduce government spending and increase revenue. On the revenue side, I would radically limit the numerous VAT exemptions - perhaps even raise the entire VAT rate by one or two percentage points. We are still at a moderate level compared to the EU average. Secondly, I would look at income tax - and see what can be deducted and whether some so-called climate-damaging subsidies are really necessary. That would perhaps even allow scope for self-financing tax rate reductions. And thirdly, I would take back some of the pension giveaways of recent years. We have to face up to the reality that people are getting older and older. So we also have to work longer.
Capital.de.
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Andreas Peichl, as an advisor to Lindner's ministry and a economist focused on inequality, expressed concerns about the CDU/CSU and FDP's proposed solution to Germany's budget crisis: cutting social benefits. He argued that this approach is the wrong way to make savings, particularly on the weakest members of society.
Markus Söder, the leader of the CSU, called for postponing the increase in the citizen's income and rethinking it altogether, citing the high inflation last year and the change in the calculation of the minimum subsistence level as reasons for the increase.
According to Peichl, however, the increase in the citizen's income was necessary due to inflation and the change in the calculation of the minimum subsistence level, which affects not only the citizen's income but also child allowances and the basic allowance in income tax. The federal government cannot ignore this procedure, he explained.
Inflation has since fallen, but Peichl noted that the German budget cannot be healed by adjusting the citizen's income alone. He suggested looking at other pots, such as taxes, to make minimally invasive and short-term savings. However, he noted that social policy and minimally invasive changes are somewhat mutually exclusive.
Peichl also suggested looking at pensions as a way to make savings in the long term, given the increase in life expectancy. He acknowledged that these topics could not be addressed in the short term, but that they would require a discussion in view of the budget crisis.
Source: www.stern.de
