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Germany

A Quick Guide To ‘Agenda 2010’

The government’s plan to boost the ailing economy focuses on reductions in health care benefits, restructuring labor regulations, tax cuts and an overhaul of the pension system. Here’s an Agenda 2010 overview.

Health care reform

On Sept. 26, Germany’s parliament, the Bundestag, passed a law that would reduce monthly premium payments for the national healthcare system from 14.3 percent of an employee’s income to 13.6 percent next year and 12.15 percent by 2006. As health insurance payments are split by employers and employees, the reduced premium is aimed at lowering Germany’s staggering non-wage labor costs. To finance the cuts, the public health fund will no longer finance dentures or replacement teeth and will require a patient co-pay for doctor visits and prescriptions. The reforms are expected to save insurance companies up to €20 billion.

Labor market reform

A second reform bill passed on Sept. 26 seeks to make Germany’s heavily regulated labor market more flexible. It reduces to 12 months the maximum duration a person can receive unemployment benefits after losing a job and also makes it easier for companies to hire and fire employees. Older employees, however, could receive unemployment benefits for up to 18 months.

Labor Office reorganization

A crucial component in the government’s reform package, passed in an effort to reduce unemployment, is a massive reorganization of the Federal Labor Office. The office will be modeled after a private placement agency and rechristened as the Federal Job Agency, with responsibility for managing unemployment benefits and finding placements for jobless. The law also requires companies to immediately inform the office if an employee has been given notice and to free up employees for job hunting so they can find other work before they become unemployed. The office would also have the ability to dock benefits for people who refuse to take employment.

Merging Unemployment and Welfare

The Hartz IV Law calls for unemployment and welfare benefits to be merged and spur those without a job into action. Under the plan, unemployed persons capable of working would be given what the government is describing as "Unemployment Benefit II" after their eligibility for unemployment runs out. Unlike the current benefit for the long-term unemployed, which pays out as much as 57 percent of a person’s last regular net income, the new benefit would be capped at €345 in western Germany and €331 in the east. A person may not be eligible to receive this second unemployment benefit if they have a working spouse or has assets exceeding €13,000.

Tax cut

The third phase of a previously approved German tax reform would be bumped up to 2004 from its originally planned implementation in 2005. The reform will change the country’s progressive tax rate from 19.9 percent to 15 percent at the lowest level and from 48.5 percent to 42 percent at the highest level. The cut is expected to save taxpayers a total of €21.8 billion. Chancellor Gerhard Schröder is hoping the cut will spur consumer spending and provide a needed boost to the country’s ailing retail sector. The government plans to finance the tax cut by slashing federal subsidies and privatizing government-held properties.

Communal financing

German cities are running at a record deficit this year, with a €10 billion shortfall in funding. The government’s plan seeks to increase the percentage received by communities of the local business tax from 2.2 percent to 3.6 percent. The tax would also be extended to previously excluded freelancers, doctors and lawyers as well as to any interest a company earns or any rent or licensing fees it pays. The government says the plan would put €4.5 billion in additional funds into city coffers by 2004 and €5 billion the year after. The merger of unemployment and welfare benefits is also supposed to save the cities several billion euros.

Reform of master craftsmen law

Under a controversial plan approved by the government earlier this year, mandatory apprenticeships and master craftsman’s diplomas would be eliminated in 65 skilled trades, allowing ambitious journeymen to set up shop without the prestigious qualification. The changes would only apply to less dangerous work like tile-laying, tailors or goldsmiths. More high-risk jobs, like electricians and opticians, would still be required to go through the lengthy and expensive certification apprenticeships.

Social Insurance Reforms

Earlier this year, the government commissioned a panel led by Bert Rürup to issue an advisory plan for saving a social system threatened with collapse by a fast-graying German population. The key provision of the Rürup Commission plan, released in August, is to increase the age of pension eligibility from the current 65 to 67. It would also reduce pension levels from 48 percent to 40.1 percent of a recipient’s former income. Workers would not be eligible for early retirement before the age of 64, and the annual cost-of-living increase would be reduced by 0.5. percent. The government is considering the commission's work as it drafts its own bill for reforming the pension system. The first reading is expected in November or December.

Meanwhile, a commission appointed by the conservative opposition Christian Democrats and led by former German President Roman Herzog has also called for the retirement age to be increased to 67, a proposal that has split the Christian Democratic Union internally and led to a rift with its Bavarian sister party, the Christian Social Union. The Herzog Commission has also called for a flat monthly health insurance premium of €264 for all Germans, a move it says would save the public health fund €27 billion.