“A collapse is imminent,” says economist Marcel Fratzscher. German social systems (pension and health) are based on the principle of payment according to expenses. Employed people finance pensions, health care and care for the elderly through contributions. “The level of contributions is already high, in total it exceeds 40 percent of the gross salary, and according to the assumptions, it would continue to grow,” he states.
However, the problem arises that with fewer children, the number of future contributors decreases, so contribution rates or the tax burden will continue to rise. “This will lead to economic damage and in the long term it can threaten the sustainability of systems. Pensions and health care are at risk. We are already seeing seniors struggling with poverty and health care costs exploding,” says Fratzcher.
Another problem is that currently every fourth German minor is dependent on social benefits, that is, they live in households where their livelihood is fully or partially covered by social benefits. Last year there were 1.8 million minors, of which 854,000 were not German citizens, the Federal Employment Office said.
“If such a high proportion of children in society grow up with the experience of dependence on social benefits, this leads to significant subsequent problems,” warns economist Bernd Raffelhüschen. According to him, studies confirm that these children “are not able to stand on their own two feet” and are headed for a life of support and social benefits.
There is no quick solution
According to economists, there are no quick solutions to the current situation, but action must be taken immediately. The measures that will be implemented now will be reflected in the horizon of 20 to 25 years. They warn against government incentives to increase the birth rate, which do not work. “Hungary, for example, at one time introduced tax breaks and the right to housing for women with several children. However, this did not fundamentally lead to a reversal in the demographic trend,” stated Fratzcher.
It is necessary to create conditions that will allow people to wish for children: better pre-school education, full-day care, removal of obstacles in the employment of women. However, economists are calling for the retirement age to be increased.
“If life expectancy continues to increase and the retirement age remains the same, it will increase the burden on social systems. It is also about intergenerational justice,” says Fratzcher. In recent years, according to him, politicians have pushed for the fact that the younger generation should pay more through higher taxes and the levies were redistributed in favor of the older generations. “This weakens the motivation of young people to work more or have children. It is also about intergenerational justice,” he warns.
