ifo Researcher Peichl Favors Comprehensive Reform of Germany’s Basic Social Security
The ifo researcher Andreas Peichl is calling for a comprehensive reform of Germany’s basic social security system. “There are about 175 different regulations on this, and nobody understands them anymore. That has to be simplified to five,” he said in Munich on Wednesday on ifo’s Economy for All podcast, marking the publication of a new study commissioned by the Stiftung Grundeinkommen think tank. “The system is too complicated and it works like it was deliberately made difficult for applicants, since the state saves EUR 6–10 billion a year as a result of eligible persons being deterred by the maze of application paperwork and not asserting their claims. It’s been that way for decades,” Peichl said.
Mansour Aalam, executive director of Stiftung Grundeinkommen, added: “If only 40 percent of those eligible actually receive basic social security, then that benefit is clearly failing in its mission. As the study shows, a basic income could address many of the current weaknesses of the basic social security system.” This basic income would be paid out automatically with no need to apply. It would eliminate the problem of eligible persons shying away from complex bureaucracy when applying. Reform of the basic social security system is imperative, Aalam continued. “At Stiftung Grundeinkommen, our view is that society ought to be talking about which elements of a basic income to use in future refinements of the social security system.”
Peichl suggested automating income assessment and means testing, for instance by querying the tax office and the employment agency: “That could cut a whole lot of red tape.” All that eligible persons would have to do is declare that their assets do not exceed a certain amount. This would do away with the assessments that the authorities must currently prepare and check in detail, which run to over 200 pages.
Peichl criticized that the wrong incentives were being set. For some recipients, earning a little extra gross actually reduces their net income because they lose government benefits. “This is completely absurd. The employment agency, youth welfare office, and housing department all apply different and sometimes contradictory criteria as to what counts as income. There’s a lack of coordination there.” This is why policymakers must take a comprehensive look at the system when reforming it.
