The plan would give local governments freedom to set rent subsidy rates for the long-term unemployed and the maximum size of these apartments would be dramatically reduced, daily Financial Times Deutschland reported.
The plan could force many Hartz IV recipients out of their existing apartments to look for smaller, cheaper accommodation and, as a result, lead to a flood of legal complaints, the paper said.
Although the federal government contributes to Hartz IV rental payments, local municipal governments administer the rental arrangements for recipients. Under the new plan, municipalities would create their own by-laws to govern the rate at which rent subsidies are paid.
The expert panel from the Labour Ministry suggested that for a Hartz IV recipient living alone, the maximum size of a dwelling could be reduced to 25 square metres. The present guideline is 45 to 50 square metres.
The revelation is contained in an answer from the government to a parliamentary inquiry by the environmentalist Greens.
The proposal is part of an effort to ease the financial burden on cash-strapped municipalities and one among many savings measures suggested by the Labour Ministry's panel. A local government finances commission is due to report in autumn.
Another such proposal is to end free bus and train transport for the disabled.