Bürgergeld: What to know about Germany’s unemployment benefits shake-up

On Jul 21, 2022

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What’s happening?

The German coalition government is preparing a big shake-up of unemployment support from next year.

On Wednesday, Labour Ministry Hubertus Heil, of the Social Democrats (SPD), unveiled draft proposals to reform the controversial Hartz IV unemployment benefit or Arbeitslosengeld II – a programme for the long-term unemployed that the SPD themselves came up with in 2002.

The plan is to switch to a benefits system based on encouragement rather than sanctions. It will be called Bürgergeld, or ‘citizens’ allowance’ .

The term Hartz IV has long been a major problem for large parts of the SPD. Many people associate the reforms passed in 2005 under Chancellor Gerhard Schröder to be at odds with the Social Democrat’s philosophy of a caring welfare state.

Here’s a look at the draft plans and what they mean.

More fairness

The aim of Bürgergeld will be to reform the system to make it fairer to claimants, meaning people will be treated less harshly than under Hartz IV. It will be given to all those who currently receive Unemployment Benefit II or Hartz IV – around 3.5 million people in Germany.

Job centres are to be more generous in dealing with benefit recipients, so that the unemployed can focus on getting back into the labour market as quickly as possible.

“We want to create more cooperation,” was a phrase that came up again and again during the presentation from Heil.

In concrete terms, this means that in the first two years of receiving Bürgergeld, benefit recipients would be allowed to stay in their homes without worry – these will not be included in the calculations of what people can receive.

Furthermore, assets of up to €60,000 would not be touched by the state. The concern of many people that they would have to give up their homes or use up their savings if they were unemployed for a longer period of time could therefore be eliminated – at least for the first two years. After that, as before, there could be checks on whether people’s housing situation is suitable (or if it is deemed too big).

Reform of sanctions

Sanctions are a big part of the current Hartz IV system, which links the right to receiving welfare payments to certain obligations, like actively looking for work and applying for roles that the job centre recommends.

If a benefits claimant doesn’t meet these obligations, they get sanctioned with a cut to their welfare payments.

In the past, there has been massive criticism of these financial punishments that Hartz IV recipients had to fear if, for example, they did not keep to agreements with the job centre.

Labour Minister Hubertus Heil unveils the Bürgergeld plans on Wednesday. Photo: picture alliance/dpa | Christoph Soeder

The new system will limit the sanctions to some extent. Heil’s proposal provides for a new regulation which would mean sanctions could not be introduced during a six-month ‘period of trust’ from the time of receipt of Bürgergeld. Payments would not be docked during this period.

After this point, sanctions could come in, but there is likely to be a change of culture. For instance, appointments at the job centre will remain compulsory, but are to become more flexible and informal.

Only those who do not cooperate with the job centre at all will have to fear negative consequences, the government says. “For people who chronically do not keep appointments, there can still be legal consequences,” said Heil.

More opportunities and incentives for further education are also part of Heil’s proposal for reforming the unemployment support system. Among other factors, people will be given more time to acquire a vocational qualification: three years instead of the previous two, under the plans.

In June the government announced that sanctions were to be eased from July this year as a step towards the reform.

Higher rates

As well as a better relationship between the state and the long-term unemployed, the Labour Minister promised that the standard rates for unemployment support should go up from January 1st 2023.

“It is important to me that we get an appropriate increase in the standard rates on 1st January that does not lag behind inflation,” Heil said.

However, it is not clear how much the benefits will go up. Heil said he plans to wait for calculations by the Federal Statistical Office.

On the basis of these calculations, the new rates will be thrashed out in September in agreement with the coalition partners, the Greens and FDP.

The monthly standard rate for single adults who are Hartz IV welfare recipients is currently €449.

The only thing that is clear so far is that the current principle, which sees the standard rates calculated on the basis of wage and price developments in the two previous years, is to be reformed. According to Heil, this leads to a long delay, especially in times of rising inflation.

What’s the reaction?

So far, the Free Democrats reject a change in the calculation formula for monthly payments. “Instead, we have to improve the additional income possibilities,” FDP leader and Finance Minister Christian Lindner told RTL. The pro-business FDP also isn’t happy with easing the sanctions situation.

But social organisations welcomed the changes.

Yasmin Fahimi, chairperson of the German Federation of Trade Unions, said Bürgergeld had “what it takes to largely overcome the old Hartz IV system”.

However, Fahimi called for an inflation-busting increase in the standard rates.

How will it be paid for?

Heil remained vague about how Bürgergeld would be funded.

Here, the coalition could face a lot of intense debates in the coming weeks. The government has been hemorrhaging money in the past years due to the Covid pandemic, rising inflation and subsequent measures to help the population and as a result of Russia’s war on Ukraine.

The Labour Minister’s bill will now go to the vote of the individual ministries. It is expected to be passed by the cabinet in September, although some aspects may change if they don’t get through the vote.

The Bundestag and Bundesrat could pass the reform this autumn, and if all goes to plan, it will come into force on January 1st 2023.