The welfare state is growing ever stronger

In 2020, for the first time, more than a third of economic output flowed into social affairs. And the proportion will hardly decrease any more, shows a new government report.

The expenditures for the statutory pension insurance will grow from the last 344 billion to 404 billion euros in the year 2025. Their share of the total social expenditure volume will rise from 29.5 to 30.4 percent.

Dhe Corona crisis has driven social spending in Germany to an all-time high: For the first time since the founding of the Federal Republic of Germany, the state channeled more than a third of all economic output into social benefits. In absolute numbers that was 1.19 trillion euros last year. The so-called social performance ratio – measured in terms of gross domestic product (GDP) – was 33.6 percent, 2.8 percentage points higher than at the height of the financial and economic crisis in 2009. This is shown by the draft of the new social report, which the federal government publishes every four years and which is to be decided by the Federal Cabinet in July. It is available to the FAZ.

The fact that social spending would rise sharply in the pandemic is not entirely surprising as such. The forecast contained in the report shows, however, that the welfare state is prepared for strong growth in spending even after the pandemic: The government assumes that the share of social benefits in GDP will be 32 percent in 2025 despite the expected new economic upturn – almost three percentage points higher than in the middle of the last decade. With the current GDP, three percentage points correspond to a good 100 billion euros per year. Shortly after reunification, social benefits were still around a quarter of economic output.

The aging of society comes at a cost

According to the data, the cause of the permanently increased social budget is the accelerated rise in expenditure on pensions and health insurance. The statutory pension insurance will therefore grow from 344 billion euros to 404 billion euros in 2025. Their share of the total social expenditure volume will rise from 29.5 to 30.4 percent. According to the forecast, the expenditure of the statutory health insurance will rise from the previous 260 billion to 319 billion euros in 2025. Their share will increase from 22.3 to 24 percent. The public service also claims a growing share of the “pie”. The expenditures for civil servants’ pensions will grow accordingly from 65.5 billion to 81 billion euros in the year 2025. Their share of all social expenditures will rise from 5.6 to 6.1 percent.

Image: Brocker

The prognosis shows that the aging of society with an increase in demographically conditioned social expenditure plays an essential role for the further development. The proportion of expenditure for the unemployed, i.e. the security systems for people in working life, according to the forecast, however, will soon fall below the Corona level, mainly because fewer younger people are competing for work. A harbinger is the latest development on the labor market: As the Federal Employment Agency reported on Wednesday, the number of unemployed fell by 73,000 to 2.614 million in June.

For unemployment insurance, the report shows a historic increase in the pandemic year 2020 – its share in the welfare state has almost doubled compared to 2019, mainly due to the millions of disbursements of short-time work benefits, by 4.8 percent. For 2025, however, only 2.5 percent are expected. And the share of expenses for Hartz IV will decrease from 4 percent in 2019 to 3.5 percent. The same applies to the so-called family benefits equalization, the main item of which is child benefit: According to the forecast, its share of GDP will decrease from 4.6 percent to 3.9 percent.

Image: Brocker

The current social report is a detailed version of the statements on the so-called social budget that the Federal Ministry of Social Affairs provides annually. It is the only comprehensive overview of all areas of the welfare state. In addition to social security and tax-financed benefits, it also shows employer-financed benefits, such as sick pay, for which companies raised a total of 64 billion euros in 2020.

More services for the sick, those in need of care and pensioners

The long version of the report, which is now due again, also provides a detailed written representation. Above all, this refers to the “enormous challenges” for the social security systems caused by the pandemic: “It leads to a loss of income and increased benefits, in particular for stabilizing the labor market and combating the health and social consequences.”

The occupational draft justifies the longer-term increase in the level of social spending with the good economic situation before the pandemic: “After 2009, social benefits rose, not least as a result of a long-lasting economic upswing,” it says. “The pension recipients also benefited from high wage increases with a time lag of one year.” In addition, the welfare state security has since been “further expanded” – above all through the expansion of health, long-term care and pension insurance benefits. Against this background, the social benefit quota had already risen from 28.8 to 30.3 percent between 2011 and 2019.