If the federal government does not take countermeasures, German public finances risk spiraling out of control in the long term. The current sustainability report of the Ministry of Finance warns of this. Germany is financially less prepared for an aging society, according to the German Press Agency. In the House of Minister Christian Lindner (FDP) this is seen as a call for far-reaching structural reforms.

The sustainability report is considered an early warning system for state finances. It only shows the consequences that the aging of society has on the budget: other burdens such as climate change and possible future crises are left out. The report is prepared by the Ministry of Finance once per legislative period based on the opinion of external scientists. The model calculations are hypothetical and assume that the policy will not change.

A “sustainability gap” is identified

The new report is due to be presented to cabinet on March 20. It represents a significant aging of the population. Today, approximately one in five people in Germany is over 66 years old and in 2070 it could be almost one in three.

This poses significant financial problems for the State: if fewer citizens work, it collects less taxes. The same applies to social security contributions. At the same time, however, more and more citizens receive benefits, for example from pensions and healthcare insurance. According to the report, demographic spending on pensions, health, care and family could increase from the current 27.3 percent of economic output to 30.8 percent in the best case scenario; Under unfavorable conditions it could even rise to 36.1 percent.

From these assumptions, experts derive the so-called “sustainability gap.” It results from the income and expenses of the welfare state and quantifies how much the state treasury would have to contribute to receive the benefits. By 2070, under favorable assumptions, it will be 1.6 percent of economic output; under a pessimistic scenario it will even be 4.7 percent. Compared to the current gross domestic product, the State would have to spend between 66,000 and 194,000 million euros less or earn more. Experts assume that Germany aims to reach the Maastricht debt ratio of 60 percent of GDP.

Lindner: Let's think about a longer working life

According to experts, if the debt brake is not respected, the debt ratio could rise to 345 percent of GDP in the worst case in 2070 and up to 140 percent in the favorable one. “Compliance with the debt rule would contribute to long-term sustainability by reducing the debt ratio
contribute to public finances,” the report says.

The Ministry of Finance sees this projection as confirmation: the sustainable development of public finances is only possible with structural changes. Placing the financing of mandatory pensions in a third pillar, the capital market, as planned by the traffic light coalition, is only a first step. Lindner also recently advocated for thinking about a longer working life. Furthermore, the demographic problem should be alleviated through the immigration of skilled workers.

Lindner is also focused on better economic growth. He has announced an immediate program that aims to initiate economic change and improve the location factors of the German economy.