Guest article by Christoph Butterwegge: Poverty researcher is furious: Traffic lights distribute handouts to the needy and billions to the rich

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Alms for the poor, billions in gifts for the rich: The budget agreement between the SPD, the Greens and the FDP represents a turning point in social policy, says our guest author.

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Due to mounting and partly overlapping crises such as the Covid-19 pandemic, the explosion in energy prices following the Ukraine war and inflation, which has financially overwhelmed not only the poor but also large parts of the middle class, our welfare state is of vital importance to a large part of the population. However, the military-political change proclaimed by Chancellor Olaf Scholz (SPD) at the beginning of the Ukraine war now seems to be followed by a change in the labour market and social policy that is putting the welfare state to the test.

The first victim of this turning point threatens to be the basic child welfare, with which the SPD, the Greens and the FDP initially wanted to materially improve the situation of millions of families in order to protect their children from poverty or lift them out of it. After more than a year and a half of discussions between the governing parties about the costs, design and implementation of the basic child welfare, the prestige social and family policy project of the traffic light coalition has turned into a reformist wreck. There are always attempts to breathe some life into it, but considering the proximity of the end of the legislative period and the expected resistance of the Union majority in the Federal Council, the proposed law seems like a lost cause.

Budget consolidation at the expense of the poor and the unemployed

Already during the discussions on the 2024 budget, the distribution conflicts between the individual federal ministries came to a head. Since the FDP and its Federal Finance Minister Christian Lindner refused to suspend the “debt brake” again or to increase taxes for the particularly wealthy, numerous cuts were made in almost all individual budgets. The cuts were drastic in the areas of education as well as in the areas of families, senior citizens, women and young people.

About the Author

Prof. Dr. Christoph Butterwegge taught political science at the University of Cologne from 1998 to 2016 and recently wrote the books “Germany in crisis mode. Infection, invasion and inflation as a social challenge” and “Redistribution of wealth” were published.

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Lately, public debates have mainly revolved around a new suspension, a weakening or the lifting of the debt brake. This was essentially a political sideshow that distracted attention from the fact that sustainable financing of state tasks requires higher taxation of private wealth. Otherwise, the poorest will pay the bill at the latest when the interest on the government loan falls due or when its repayment becomes due.

Tougher treatment for beneficiaries of citizen benefits

The labour market and red-green-yellow social policy are like the Echternach procession of leaps: three steps forward, two steps back. First, in order to “overcome” Hartz IV and tackle the shortage of skilled workers, benefit recipients were motivated to continue their professional development with a “citizens' money bonus” of 75 euros per month, but this was abolished again six months after its entry into force. It comes into force due to problems with the 2024 federal budget.

When the citizen's benefit was introduced, the unemployed were granted a one-year “waiting period” to be able to reorient themselves professionally, and the penalties for failure to fulfill duties by those entitled to the benefit were softened. Under the current budget resolutions, the waiting period, during which the employment office did not examine assets or the size of the apartment, is halved, and the penalties, now renamed “reductions in performance”, are again toughened – in individual cases even more so than under the original legal situation.

Even the first failure to register (not showing up for an appointment at the employment office) should result in a 30 percent reduction in citizens' benefits for one month. Since the government parties are also lagging behind Hartz IV with the tightening of reasonableness rules (travel times of several hours to work), the SPD, Greens and FDP can no longer be described as a “progressive” coalition – at least in terms of labour market and social policy – but must be described as a coalition of regression.

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Redistribution of wealth

Other social benefits subsequently became the focus of the “austerity discussions” and proposals for cuts by the traffic light coalition and the civil opposition. In particular, there was the early retirement pension, which is still wrongly called the “pension from 63 years of age” for people who have been insured for a particularly long time and who must have been employed subject to social security contributions for 45 years in order not to be penalized with deductions throughout their entire retirement if they start it at the age of 64 for its use. At least if the budget dispute had been reduced to the smaller coalition partner or the CDU/CSU and AfD.

Wish list of German business and banking associations

#During the discussions on the 2025 budget, the week-long stalemate of the previous year was repeated. After several late-night meetings, Scholz, Vice-Chancellor Robert Habeck and Finance Minister Christian Lindner agreed on a budget compromise, as explained in their 31-page document “Growth Initiative – New Economic Dynamics for Germany”. Among the 49 points it contains, there is not a single measure that would affect the rich and wealthy, but a large number of stricter laws for the socially disadvantaged and poor.

For a long time, the coalition leaders' document reads like a wish list from German business and banking associations. There are many commitments to strengthen the competitiveness of the economic, financial and research location itself, combined with expensive subsidy promises and plans for new depreciation options that will probably make the rich even richer and the poor even more numerous.

Although neoliberalism and its localization logic have caused the budgetary misery of recent decades, the traffic light coalition paradoxically sees it as a suitable means of increasing growth and prosperity. It is difficult to attract believers with rational counterarguments, especially when there are powerful economic interests behind them.

The SPD, the Greens and the FDP want to cut federal funding for the Deutschlandticket, which will therefore make it more expensive for rail users next year, but the poor have hardly any more at their disposal than the previous 49 euros per month. Citizens' money for transport and mobility is also not sufficient to cope with the expected price increase.

“Savings” are made at the expense of the poor; the rich receive gifts

The “savings” are made at the expense of the poor, while the rich, a core clientele of the FDP, are not at all affected by the budget concept of the traffic light coalition, but are once again exclusively given gifts. From 1 January 2025, the employment office will immediately deduct the child benefit (currently 250 euros) that families receiving the citizen's benefit receive, as well as the immediate child benefit for minors receiving the citizen's benefit (currently 20 euros) will increase by 5 euros per month for people with normal income.

But this is only a help for the lowest earners – the highest earners will receive a cash gift worth billions: the tax relief for children will be increased earlier, namely retroactively to 1 January 2024 – and also more strongly: by 228 euros to 9,540 euros this year, and again by 60 euros to 9,600 euros next year. This translates into a monthly tax saving for top earners of 377.43 euros (2024) or 379.80 euros (2025). Saleswomen and nurses receive 127.43 euros (2024) or 124.80 euros (2025) less from the state for their children than investment bankers, senior managers and chief physicians for their children.

While the debt brake remains in place, basic child welfare is taking a backseat. The imbalance in redistributive policy is exacerbated by the drive for growth in the German economy. The tax exemption for overtime, which is justified by the fight against the shortage of skilled workers, also primarily benefits companies. The fact that employer contributions to pension and unemployment insurance for employees who have exceeded the legal retirement age may in future be paid as part of their wages weakens social security.