ifo Report on Basic Child Allowance in Germany: Significantly Less Poverty and High Costs

A basic child allowance as envisioned by the Green Party could reduce the risk of poverty for families with children and provide significant relief for low- and middle-income earners. The reform would cost EUR 27 to 33 billion, depending on its design, and parents would work less. This is the finding of an ifo report produced on behalf of the Bündnis 90/Die Grünen parliamentary group in the German Bundestag. The aim is to improve the situation for families and make it easier for people to receive benefits. A basic child allowance is currently being discussed in the coalition negotiations.

“The concept is taking the right approach. There are too many different benefits for families in Germany, and it makes sense to straighten out this contradictory tangle,” says ifo researcher Maximilian Blömer. At its core, the reform consolidates various family benefits into a basic child allowance and detaches child-related benefits from Germany’s second level of unemployment benefits (Arbeitslosengeld II). It also provides for an increase in benefits for low- and middle-income earners.

“Care must be taken not to offset parents’ income too much. In the future, there would be two benefits – the basic child allowance and the Hartz IV standard rates for parents. This has to be well coordinated,” Blömer continues.

Poorer families with children stand to benefit in particular from the significant improvements the proposal contains. It could bring down the poverty risk rate by some 3 percentage points. But because parents would then go to work less, that raises the cost of the package to EUR 27–33 billion, depending on how it is designed.