Grants and Short-Time Allowance Make Up for 80 Percent of German Income Losses from Covid-19
The coronavirus allowances for families and the extension of short-time allowances adopted by the German government in 2020 have stabilized gross earned incomes in the country. This is the finding of recent calculations by the ifo Institute together with the European Commission’s Joint Research Centre. Gross earned income was actually down about 5 percent in 2020. But special government measures and the “automatic stabilizers” in the tax and social security system reduced this loss to 0.8 percent. “These results confirm our initial findings from the summer. Efforts to stem the rise in income inequality and mitigate the risk of poverty have been successful,” says Andreas Peichl, Director of the ifo Center for Macroeconomics and Surveys.
“A combination of government measures and the existing system managed to convert a loss of EUR 100 in market income into a loss of EUR 20 in real disposable income,” Peichl says. The special coronavirus measures include the EUR 300 child bonus. In addition, tax relief for single parents was increased by more than 100 percent to EUR 4,008 (previously EUR 1,908) for 2020 and 2021. These grants enabled recipients to better shoulder the increased cost of living during the pandemic.
In addition, access to basic social security was made easier. Short-time allowances and the special measures particularly benefit low-income households, while high-income households benefit from progressive income taxation. “Because some of these measures expired in 2020, were reduced, or will expire in 2021, lower-income households are likely to remain negatively impacted as long as the pandemic continues. It therefore seems necessary to take further measures to fight poverty and compensate the pandemic’s losers,” Peichl recommends.
