Date 2022.11.09

Grace period, declaration of assets, exemption levels and trust period – these and other factors are affected by the draft law on the new citizen’s benefit. In our report to the parliamentary Budget Committee, we flag the risks surrounding some of the proposed changes.

The draft law stipulates that unemployment benefits and social allowances are to be replaced by the citizen’s benefit. The step aims to provide opportunity for fresh perspectives, raise the level of social security protection – and to slash red tape.

The new law is to come into force on 01 January 2023. In 2023 alone, the law will lead to higher expenditures of approximately €4.8 billion (of which €4.2 billion are to be borne by the federal government).

We provided advice to the Budget Committee based on our audit findings. As a yardstick, we used the still applicable fundamental notion underlying the law: The basic income support regime aims to provide a perspective to those who are unable to attain independence from their own means and resources. Given this premise, we welcome some of the proposed changes; other changes, however, could prove to be ineffective and lead to avoidable financial risks to the federal budget – as the following examples may illustrate:

• The two-year grace period, during which assets are not taken into account and actual housing and heating costs are acknowledged, goes far beyond the relief granted during the COVID-19 pandemic.
• In the future, the applicant’s assertion that he/she has no material assets will be considered an adequate declaration of assets. By not requiring the applicant to provide any evidence, the government opens the door to abuse and deadweight effects.
• The exemption levels applicable during the grace period, which are €60,000 per entitled individual and €30,000 per any additional individual living in the applicant’s household, appear to be excessively high – given the unchanged legislative premise.
• During the six-month trust period, sanctions do not apply to the breach of duties and first-time reporting failures. Our audit findings show, however, that the preventive effect of sanctions has a positive impact on the communication between entitled individual and job centre, the job placement process as a whole and the period of entitlement.

Due to the proposed legislation’s social and financial importance and its impact on the labour market, we recommended considering our findings in the current legislative procedure. Potential risks and adverse effects should be reliably evaluated prior to adopting wide-reaching changes to the basic income support system.

Law on citizen’s benefit – beware of risks and adverse effects (German version)