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MONEY

EXPLAINED: Who pays the most German tax and who benefits the most?

A new study looks at what overall demographics put into, and take out of, the German social model.

EXPLAINED: Who pays the most German tax and who benefits the most?
Photo: DPA/Marijan Murat

The German tax and social welfare system is a complicated network featuring six different tax classes and numerous quirks involving how residents pay tax, make contributions to their health and social insurance, and receive state-funded benefits and services.

So who is putting the most tax money in and who is benefitting the most from services?

A new study from the Institute for the German Economy sought to answer this question, and put together the results in an interactive graph.

Researchers looked at the average contributions and benefits people in Germany made and received according to their age, gender, and education in 2021.

On the government revenue side, they considered what people paid in income tax, VAT while shopping, contributions to health, pension, and unemployment insurance – along with taxes on property, tobacco, and alcohol.

For services citizens and residents received, the study tallied up what German governments spend on everything from daycare and schools to pensions, health expenditures, and child allowances.

People with a university education, on average, provided the biggest surplus to the state coffers. This group generates annual government revenue of around €355 billion, while receiving €220 billion in transfers, benefits, and services. Meanwhile, people with vocational training paid in about €450 billion and received €435 billion. Those without vocational training received €125 billion compared to the €80 billion they put in.

READ ALSO: Wages, rent and pensions: What will the new German government mean for your wallet?

Perhaps obviously, the greatest differences can be seen across age groups.

Up until about age 24, the average German resident receives considerably more from the state than they put in—mostly through schooling. At that age, that ratio roughly equalizes. From that point on, the total value of services the average German resident receives stays fairly consistent, as fewer receive schooling but more begin getting child benefits.

The amount of annual tax paid then steadily climbs before reaching a high point in the mid-50s. That’s the age when the average taxpayer in Germany is generating the greatest surplus for German governments—putting a net figure of around €14,000 more in than they take out.

From there on, contributions fall and benefits increase sharply. For example, the average 75 year-old receives almost €18,000 more in benefits than they contribute to government coffers – as health and pension costs rise over time.

Study author Martin Beznoska says that, given these figures, Germany’s ageing population will become a bigger concern for state treasuries. “Because of demographic change, it is becoming increasingly urgent to reform our social security systems.”

READ ALSO: Pensions in Germany: How the new government plans to solve an age-old issue

The study also found significant differences based on both gender and region. Women tend to pay less tax than men due to earning less on average. Meanwhile, the average 54 year-old in western Germany will contribute around €21,300, compared to the average 54 year-old living in eastern Germany, who contributes €15,400.

Vocabulary

Tax – (die) Steuer. This can include income tax (Einkommensteuer), VAT (Mehrwertsteuer) or property tax (Grundsteuer), for example.

Insurance – (die) Versicherung. This can include health insurance (Krankenversicherung) or pension insurance (Rentenversicherung), for example.

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MONEY

Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 

READ ALSO:

What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life

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