Bad economy spurs jobs agency deficit

Germany’s Federal Labour Agency confirmed Saturday that it is facing a €17.8 billion deficit as the worsening economy, higher unemployment claims and government support for a shorter working hours scheme drain the its coffers.

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Policies such as Kurzarbeit, which cover a portion of workers’ pay packets if their employer has to cut hours, have kept unemployment lower than most economists expected. But the government, already facing record deficits and ambitious plans to cut taxes, will have to fill in most of the budgetary gap itself.

The agency, which is financed primarily by worker and employer contributions, expects to spend almost €54 billion next year, but will take in just €36.1 billion and has just €1.8 billion in reserves to cover the deficit itself.

According to a report first published by Der Spiegel newsmagazine, the agency expects to pay out €22.5 billion in unemployment benefits in 2010, a €4.8 billion increase over 2009.

The agency’s figures are certain to intensify the political debate over planned tax cuts. The new centre-right coalition of Christian Democrats and pro-market Free Democrats have planned tax cuts of €24 billion and the FDP in particular had hoped to implement those cuts immediately. With government budget deficits projected to pass €86 billion, CDU Finance Minister Wolfgang Schäuble has indicated he would like to roll back the planned tax reductions.