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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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ENERGY

Should tenants in Germany be shielded from energy price hikes?

Gas prices have more than tripled in the past year, prompting tenants' rights advocates to call for more social support and a cap on energy costs.

Should tenants in Germany be shielded from energy price hikes?

The German’s Tenants’ Association is calling on the government to put together a new energy relief package to help renters deal with spiralling energy costs.

Gas has become an increasing scarce resource in Germany, with the Economics Ministry raising the alert level recently after Russia docked supplies by 60 percent.

The continued supply issues have caused prices to skyrocket. According to the German import prices published on Thursday, natural gas was three times as expensive in May 2022 as it was in May a year ago.

In light of the exploding prices, the German Tenants’ Association is putting the government under pressure to offer greater relief for renters.

READ ALSO: 

Proposals on the table include a moratorium on terminating tenancy agreements and a permanent heating cost subsidy for all low-income households.

The Tenants’ Association has argued that nobody should face eviction for being unable to cope with soaring bills and is urging the government to adjust housing benefits in line with the higher prices. 

Gas price cap

Renters’ advocates have also joined a chorus of people advocating for a cap on consumer gas prices to prevent costs from rising indefinitely.

Recently, Frank Bsirske, a member of the parliamentary Green Party and former head of the trade union Verdi, spoke out in favour of capping prices. Bavaria’s economics minister and Lower Saxony’s energy minister have also advocated for a gas price cap in the past. 

According to the tenants’ association, the vast majority of tenants use gas for heating and are directly affected by recent price increases.

At the G7 summit in Bavaria this week, leaders of the developed nations discussed plans for a coordinated cut in oil prices to prevent Russia from reaping the rewards of the energy crisis. 

In an initiative spearheaded by the US, the group of rich nations agreed to task ministers will developing a proposal that would see consumer countries refusing to pay more than a set price for oil imports from Russia.

READ ALSO: Germany and G7 to ‘develop a price cap’ on Russian oil

A gas price cap would likely be carried out on a more national level, with the government regulating how much of their costs energy companies can pass onto consumers. 

Strict contract laws preventing sudden price hikes mean that tenants in Germany are unlikely to feel the full force of the rising gas prices this year

However, the Tenant’s Association pointed out that, if there is a significant reduction in gas imports, the Federal Network Agency could activate an emergency clause known as the price adjustment clause.

This would allow gas suppliers to pass on higher prices to their customers at short notice. 

The Tenants’ Association has warned that the consequences of an immediate market price adjustment, if it happens, should be legally regulated and socially cushioned.

In the case of the price adjustment clause being activated, the government would have to regulate the costs that companies were allowed to pass onto consumers to prevent social upheaval. 

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