Government Leader to Present Proposed Changes in Citizens' Financial Assistance Program
The German government has announced plans for a reform of the citizen's allowance, aiming to make significant adjustments and savings. According to Federal Chancellor Friedrich Merz, CDU, the Union and SPD aim to agree on key points for the reform by the end of this year.
The coalition agreement has a clear agreement on the reform of citizen's allowance, with the plan to replace it with a basic security. Chancellor's Office Minister Thorsten Frei has urged swift action in the reform, while Economics professor Enzo Weber from the Institute for Employment Research has expressed doubts about the feasibility of significant savings from the reform.
Merz has projected that the reform could result in savings of around five billion euros annually, aiming to reduce costs by about ten percent. However, labor market experts, including those from the Institute for Employment Research, consider this figure unrealistic. Instead, they expect only limited direct savings from sanctions or benefit reductions.
A significant part of potential savings would come from integrating recipients into the workforce. For example, transferring 100,000 unemployed individuals to employment could save around 1 to 2 billion euros, according to Federal Labor Minister Bärbel Bas, SPD. With combined effects of savings and additional tax revenues potentially reaching relevant dimensions, this could be a key factor in the reform's success.
Meanwhile, the budget for the current year has been finalized, with planned expenses totaling around 502.5 billion euros. This represents a decrease of 460 million euros compared to the original plans. No changes were made to the new debt in the core budget, with almost 82 billion euros in new loans planned. Debt from special funds for the Bundeswehr and infrastructure is expected to add billions, resulting in a total debt of more than 140 billion euros.
Frei considers the savings of five billion euros targeted by Merz for the citizen's allowance as "very realistic". However, Weber suggests that any savings would depend on more economic growth, more jobs, and fewer citizen's allowance recipients. Weber states that there would be no significant long-term effects if one wants to save money directly by reducing citizen's allowance benefits.
Federal Minister of Labor Barbara Bas, SPD, will submit a proposal for the reform in the coming days. The final budget will be decided in the Bundestag today. As the reform moves forward, it remains to be seen how the government will address the concerns of both supporters and critics of the proposed changes.
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