Here’s how Germany’s Kinderbonus payments ‘boosted economy’ in pandemic

Germany's coronavirus cash payment to families was found to be a more efficient and cost-effective way of boosting spending than lowering VAT, a new study shows.

Here's how Germany's Kinderbonus payments 'boosted economy' in pandemic
Families got a cash boost in the pandemic. Photo: DPA

The German government introduced a raft of measures – including the Kinderbonus and slashing VAT rates – aimed at boosting the economy.

The move was to get people spending money again after the shutdown in spring 2020 to slow the spread of Covid-19.

And now, as the government announced it is to give out another Kinderbonus this year, a new study has highlighted the positive effects of the one-off cash boost to families.

The €300 payment per child given out in autumn 2020 effectively boosted private household consumption, according to research by the Macroeconomic Policy Institute (IMK) of the Hans Böckler Foundation.

According to the study, the ratio between the costs invested by the government and the benefits for the economy was better with the Kinderbonus than with the temporary reduction of VAT, in place between July and December last year.

In a survey from November 2020, 37 percent of respondents said they had already spent the Kinderbonus in full.

Another 27 percent had spent the one-time payment at least partially. On average, 51 percent of all households who received the payment had spent it on private consumption at that time. The remaining amount was saved or used to pay off debts.

With about 18 million children whose parents are entitled to child benefit, €2.8 billion has flowed into the economy through spending by private households since the bonus was paid out, calculations by the IMK show.

Since the federal government invested a total of about €4.3 billion in the scheme, this measure is very efficient, researchers said.

READ ALSO: How Germany plans to increase child benefits and provide tax relief

VAT reduction was more costly

A second economic stimulus measure, the temporary reduction of VAT, cost the government considerably more: a total of €20 billion according to the Finance Ministry.

In the IMK survey, however, the majority of respondents said that in their perception, the VAT reduction had only been partially passed on to consumers. Meanwhile, just under 30 per cent were of the opinion that the tax cut had been passed on for the most part.

Nevertheless, according to 79 percent of the respondents, the VAT reduction had no noticeable impact on consumer behaviour. Only 16 percent used the tax cut to bring forward planned purchases, 4.5 percent to make additional purchases.

The study did not record how much money the respondents spent on additional or purchases that were brought forward.

But the Munich-based ifo Institute for Economic Research calculated an average consumption effect of about €152 per household. This would result in additional expenditure of about €6.3 billion. This corresponds to about one third of the cost of the tax cut.

The IMK also concludes from the data that above all, households with higher incomes used the VAT cut for additional purchases.

The Kinderbonus, on the other hand, had specifically reached households with low to medium incomes, and who were often confronted with additional costs over the course of the pandemic.

One-off payment to everyone 'would also boost economy'

Since, in contrast to the tax cut, not everyone benefited from the Kinderbonus, the IMK also asked households without children how they would use a hypothetical one-off payment of €500.

The answers show that the respondents would spend on average about 41 percent of such an additional income.

The study concludes that the consumption-increasing effect of the Kinderbonus is likely to be considerable measured against the manageable costs for the federal government – and assumes that a broader one-off payment to private households, comparable to direct aid in the US, could have a similar effect.

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Living in Germany: Battles over Bürgergeld, rolling the ‘die’ and carnival lingo

From the push to reform long-term unemployment benefits to the lingo you need to know as Carnival season kicks off, we look at the highlights of life in Germany.

Living in Germany: Battles over Bürgergeld, rolling the 'die' and carnival lingo

Deadlock looms as debates over Bürgergeld heat up 

Following a vote in the Bundestag on Thursday, the government’s planned reforms to long-term unemployment benefits are one step closer to becoming reality. Replacing the controversial Hartz IV system, Bürgergeld (or Citizens’ Allowance) is intended to be a fair bit easier on claimants.

Not only will the monthly payment be raised from €449 to €502, but jobseekers will also be given a grace period of two years before checks are carried out on the size of their apartment or savings of up to €60,000. The system will also move away from sanctions with a so-called “trust period” of six months, during which benefits won’t be docked at all – except in very extreme circumstances. 

Speaking in parliament, Labour Minister Hubertus Heil (SPD) said the spirit of the new system was “solidarity, trust and encouragement” and praised the fact that Bürgergeld would help people get back into the job market with funding for training and education. But not everyone is happy about the changes. In particular, politicians from the opposition CDU/CSU parties have responded with outrage at the move away from sanctions.

CDU leader Friedrich Merz has even branded the system a step towards “unconditional Basic Income” and argued that nobody will be incentivised to return to work. 

The CDU and CSU are now threatening to block the Bürgergeld legislation when it’s put to a vote in the Bundesrat on Monday. With the conservatives controlling most of the federal states – and thus most of the seats in the upper house – things could get interesting. Be sure to keep an eye out for our coverage in the coming weeks to see how the saga unfolds. 

Tweet of the week

When you first start learning German, picking the right article to use can truly be a roll of the “die” – so we’re entirely on board with this slightly unconventional way to decide whether you’re in a “der”, “die”, or “das” situation. (Warning: this may not improve your German.) 

Where is this?

Photo: picture alliance/dpa | Boris Roessler

Residents of Frankfurt am Main and the surrounding area will no doubt recognise this as the charming town of Kronberg, which is nestled at the foot of the Taunus mountains.

This atmospheric scene was snapped on Friday morning, when a drop in temperatures saw Kronberg and surrounding forests shrouded in autumnal fog.

After a decidedly warm start to November, the mercury is expected to drop into single digits over the weekend. 

Did you know?

November 11th marked the start of carnival season in Germany. But did you know that there’s a whole set of lingo to go along with the tradition? And it all depends on where you are. First of all, the celebration isn’t called the same thing everywhere. In the Rhineland, it’s usually called Karneval, while people in Bavaria or Saxony tend to call it Fasching. Those in Hesse and Saarland usually call it Fastnacht. 

And depending on where you are, there are different things to shout. The ‘fools call’ you’ll hear in Cologne is “Alaaf!” If you move away from Cologne, you’ll hear “Helau!” This is the traditional cry in the carnival strongholds of Düsseldorf and Mainz, as well as in some other German cities.

In the Swabian-Alemannic language region in the southwest of the country, people yell “Narri-Narro”, which means “I’m a fool, you’re a fool”. In Saarland at the French border, they shout “Alleh hopp!”, which is said to originate from the French language. 

Lastly, if someone offers you a Fastnachtskrapfe, say yes because it’s a jelly-filled carnival donut. And if you’re offered a Bützchen? It’s your call, but know that it’s a little kiss given to strangers!