Ifo study: Elimination of tax classes III and V may boost employment
The German federal government had decided to abolish tax brackets III and V for married couples by the end of July. This reform is seen as a replacement for the long-criticized marriage splitting: In the future, spouses will be taxed based on their individual earned income to distribute the income tax burden more fairly.
The Ifo Institute advocates for further changes. "The German tax and levy system can definitely be redesigned to mitigate the labor shortage," explained Volker Meier from Ifo. Possible measures include transitioning from marriage splitting to family splitting, ending the contribution-free co-insurance of spouses in statutory health and long-term care insurance, and higher pension reductions for early retirees.
Experts also see potential in expanding childcare, especially in large western cities where there is a shortage of daycare spots. The abolition of the pension at 63 is also mentioned. However, the study found that the greatest employment boost would come from raising the statutory retirement age from 67 to 69 years. According to Ifo, all these reforms could create 1.2 million full-time jobs.
"Given the demographic shift and the labor shortage, our tax and social security system must consistently reward employment," explained Meier. "Every employment incentive counts: whether it's entering the workforce, a few more hours of part-time work, or working longer because it's more attractive - every additional weekly working hour counts."
The Ifo Institute suggests that transitioning to family splitting and ending contribution-free co-insurance for spouses could lead to more employment opportunities, potentially creating more full-time jobs. The study also indicates that raising the statutory retirement age can result in a significant boost in employment, contributing to 1.2 million full-time jobs.
