Welfare spending and its relevance for Germany’s federal budget

hans-joerg.schaeper@bk.bund.de

Introduction

• Information on the social safety net in Germany• History:

In the 19th century Bismarck established an insurance system against social risks.

Main topics

• Welfare state as a productive factor• As little state as possible• Future of the welfare state • Role and development of the welfare budget• Funding from the federal budget

Welfare state as a productive factor

• Social security leads to social integration and harmony.

• Employees with a social safety net are motivated and productive.

• Number of working hours lost through strikes low compared to other countries.

Social security – a constitutional task

• Principle of the social state enshrined in Article 20 (1) of the Basic Law.

• State has a responsibility to provide for its citizens’ social welfare.

• State has a duty to keep the costs for each insured person at a reasonable level.

Social security network

• In Germany the welfare state is shaped by non-governmental institutions.

• Social partners define working and economic conditions.

• Independent welfare organisations mobilise private funding.

As little state as possible

• Branches of social security are self-governing institutions.

• Subsidiarity is a fundamental organisational principle of welfare state solidarity.

• Self-governance is a fundamental aspect of the welfare state.

Reform needed

• Principle of social security must be upheld for future generations.

• Federal Government is reforming health care, unemployment and social security legislation as well as pension insurance.

Role and development of the welfare budget

• The welfare budget elucidates social security spending trends, shows how spending is financed and includes the medium-term forecasts.

Social expenditure ratio

• Index for relationship between social security contributions and total economic value added.

• Social expenditure ratio = relationship between social budget and nominal GDP.

Functional social budget

• Summary of social expenditure according to purpose.

• Structuring according to function reveals social development priorities.

• This is the nucleus of the social budget.

Institutional social budget

• Summary of social expenditure according to institution.

• The focus is on social security.

Financing social security

• The financial accounts provide information about the annual funding generated by the economy.

• They are presented in a way which differentiates between the various forms of funding.

• Their structure makes it easier to evaluate the burden on enterprises and labour costs.

Financing social security from the federal budget

• Most heavily funded sector in the 2014 federal budget.

• Expenditure amounted to around 146 billion euros in 2013.

• This corresponds to 49.5% of total expenditure.• Expenditure in 2015 and 2016 will amount to

around 160 billion euros.

Pension insurance payments

• Expenditure of 82.5 billion euros in 2014.• Mainly comprises the federal subsidy for pension

insurance for wage‑earners and salaried employees.

• 11.7 billion euros were earmarked for child-raising periods.

Labour market policy

• This sector was characterised by a reform and slow economic recovery.

• The only gradual drop in unemployment figures resulted in payments totalling 30.3 billion euros.

• 30.2 billion euros were earmarked for basic job seekers’ allowance.

Family‑related expenditure

• The Federation has recognised the task ofchild-raising since 1986. 2.9 billion euros were allocated for this in 2005.

• Family allowance – child benefit – is provided tax-free up to the minimum subsistence level. Relief for families totals around 2.3 billion euros.

• Parental allowance to support young parents 5.05 billion euros

Family‑related expenditure

• Childcare funding, investments: 261.3 million euros

Further federal welfare expenditure

• Housing benefits: 630 million euros in 2014• Home owner allowance: 300 million euros• Payments to war victims: 1.3 billion euros• Social policy for the agricultural sector: 3.6 billion

euros• Welfare benefits: 4.4 billion euros

Future of the welfare state

• An ageing population in Germany is presenting a huge challenge to social welfare systems.

• Active social change is required.• Economic momentum and social welfare must go

hand in hand.• A viable balance must be found between

individual needs and the interests of the welfare systems as a whole.