The elimination of tax classes III and V could lead to 67,000 fulltime jobs
The abolition of tax classes III and V could lead to the creation of 67,000 full-time jobs, according to experts from the Munich-based Ifo Institute. A study published on Friday found that further reforms in the tax and social security system have the potential to increase employment. "Significant employment potential remains untapped due to perverse incentives, particularly for women and the elderly," the experts criticized.
The federal government decided to abolish tax classes III and V for married couples at the end of July. This reform is seen as a replacement for the long-criticized marriage split: In the future, spouses will be taxed based on their individual earned income to distribute the income tax burden more fairly.
The Ifo Institute also 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 early retirement deductions.
The experts also see potential in expanding childcare, especially in large western cities where there is a shortage of daycare places. 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 labor market, working a few more hours in part-time work, or working longer and more attractively towards retirement - every additional weekly working hour counts."
The Ifo Institute suggests that redesigning the German tax and levy system could alleviate the labor shortage, as Calculations show. One potential measure they propose is transitioning from marriage splitting to family splitting, which could have significant implications for employment.
Furthermore, the Ifo Institute's Calculations indicate that expanding childcare, especially in large cities with a shortage of daycare places, could create more job opportunities. This is just one of the many strategies they propose to boost employment in response to the demographic shift and labor shortage.
