German Welfare Spending ‘A Ticking Time Bomb’ That Could K.O. The Balanced Budget

Germany’s welfare spending is reaching record levels with further uncontrollable growth predicted, a budget spokesman in Chancellor Angela Merkel’s governing coalition warned.

Welfare spending in Germany accounted for 27.2 percent of the total government budget in 1990, and 38 per cent in 1995. However, with enhanced social security benefits recently announced in an atmosphere of record-low unemployment, rising wages and steady economic growth, it is expected to leap by more than 1.5 per cent (almost €10 billion) in 2017 to €171.1 billion.

That equates to 52.6 per cent of the overall federal budget (fractionally below 2010’s peak of 53.8 per cent). Adding interest payments to the bill raises the expenditure to 55.8 per cent, a new all-time record reports German news website N24.

“The development of the social security benefit ratio is problematic,” said Eckhardt Rehberg (pictured above, with Chancellor Merkel), a Bundestag member and budget specialist in Chancellor Merkel’s Christian Democratic Union told Reuters. He added:

“We need to watch out that we don’t establish a trend by setting the wrong course that comes back to bite us the next time the economy takes a downturn or in the long run.”

Specifically the German government agreed in March to the biggest state pension uplift in more than two decades, as well as raised housing allowances, enhanced parental benefits, improved disability allowance benefits and a €500 million boost to the federal healthcare subsidy, raising it next year to €14.5 billion.

For now the German government believes it can manage the extra social security costs without relying on any new net borrowing up to 2020. The rising tax revenues generated by low unemployment are said to cover the bill, and are even budgeted to pay for higher spending on migrants, security, education and infrastructure.

Others warn there are dark demographic clouds on Germany’s horizon.

Martin Beznoska of the Cologne Institute of Economic Research said the country’s ageing workforce will start to make a dent in state coffers by the middle of the next decade. The government itself estimates Germany’s working age population will shrink by 6 million by 2030 as the death rate outstrips births.

Even worse, by 2040 the number of people aged over 67 is expected to rise by 42 per cent, at the same time those active in the workforce — aged between 20 and 66 — will shrink by a quarter, according to the Federal Statistics Office.

Mr. Beznoska also warned that social spending is going in the wrong direction in any case, explaining that when economies boom welfare bills should reduce.

There is now no scope for change until the autumn of 2017, because parties in the coalition government will not want to scare voters ahead of the federal elections.

At that point, Mr. Beznoska predicts, it will become imperative for whichever government comes to power to reverse the trend, as the next legislature will be operating “on the eve of demographic change.”

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